<PAGE>

                                UNITED STATES 
                      SECURITIES AND EXCHANGE COMMISSION 
                             Washington, D.C. 20549

                                   FORM 10-K

(Mark One)
  X  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
     SECURITIES AND EXCHANGE ACT OF 1934.  
     For the fiscal year ended December 31, 1996.
               OR 
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES AND EXCHANGE ACT OF 1934. 
     For the transition period from_________ to _________ 

              Commission file number           0-28706               
                                            -------------
							
                           FIRST ALLIANCE CORPORATION
             (Exact name of registrant as specified in its charter)

         Delaware                                  33-0721183 
------------------------------               -----------------------
(State or other jurisdiction of      (I.R.S. Employer Identification Number) 
 incorporation or organization)

17305 Von Karman Avenue, Irvine, California             92614
-------------------------------------------             ------
(Address of principal executive offices)              (zip code)
 
       Registrant's telephone number, including area code  (714) 224-8500

        Securities registered pursuant to Section 12(b) of the Act: None

     Title of each class           Name of each exchange on which registered
     -------------------           ------------------------------------------
    Class A Common Stock,                NASDAQ National Market System 
       par value $0.01

       Securities registered pursuant to Section 12(g) of the Act: None 

   Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act 
of 1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  Yes [X] No [   ]

   Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K is not contained herein, and will not be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-K or any amendment of this Form 10-K. [   ]

   As of February 28, 1997, the aggregate market value of voting stock held 
by nonaffiliates of registrant was approximately $109 million.

   As of February 28, 1997, the shares outstanding of the issuer's classes 
of common stock were as follows: 
Class A Common Stock: 4,043,067 shares; Class B Common Stock: 10,750,000 
shares.  	

                   DOCUMENTS INCORPORATED BY REFERENCE:

   The information required by Part III, Items 10, 11, 12 and 13 is 
incorporated by reference to First Alliance Corporation's proxy statement 
which will be filed with the Commission not more than 120 days after 
December 31, 1996.



<PAGE>

                                   PART I

Item 1.  Business. 

General 

     First Alliance Corporation ("FACO"), together with its subsidiaries 
(the "Company"), is a financial services organization principally engaged in 
mortgage loan origination, purchases, sales and servicing.  Loans originated 
by the Company primarily consist of fixed and adjustable rate loans secured 
by first mortgages on single family residences.  The majority of the 
Company's loans are made to owners of single family residences who use the 
loan proceeds for such purposes as debt consolidation and financing of home 
improvements.  Typically, the Company's borrowers are individuals who do not 
qualify for conventional loans because of impaired or unsubstantiated credit 
characteristics and/or unverifiable income, and whose borrowing needs are 
not met by conventional lending institutions.  Other borrowers include 
individuals who may qualify for a conventional loan but find the Company's 
loans attractive due to the Company's personalized service and fast funding 
capability.  The Company sells loans to wholesale purchasers or securitizes 
them in the form of a Real Estate Mortgage Investment Conduit (REMIC) trust.  
A significant portion of the mortgages are securitized with the Company 
retaining the right to service the loans.  The Company is currently licensed 
as a consumer finance lender in thirteen states and in the United Kingdom.

     To identify potential customers, the Company utilizes a proprietary 
marketing methodology developed over its 25 years of existence.  This 
methodology focuses on a distinct segment of the home equity lending market 
by narrowly targeting homeowners believed by management, based on historic 
customer profiles, to be pre-disposed to using the Company's products and 
services, and who otherwise satisfy its underwriting guidelines.  Using 
information obtained from a variety of outside sources for new and existing 
markets, the Company develops a list of homeowners with characteristics that 
make them likely customers.  The Company then focuses its telemarketing and 
mailing efforts on these identified homeowners.

     Prior to 1994, all of the Company's operations were conducted from 
retail branch offices located in California.  Since 1994, the business 
strategy of the Company has been to expand its retail branch office 
operations to states other than California to maximize opportunities that 
exist in new markets.  Currently, the Company has 24 retail branch offices 
in 13 states and the United Kingdom and has identified locations in six 
other states and additional areas in the United Kingdom in which it may open 
new retail branch offices in the future.

     The Company is primarily a retail originator of loans, with 90% of its 
loan volume in 1996 coming from its retail branch office and portfolio 
refinancing operations.  Besides a strong emphasis placed on its marketing 
and sales efforts, the Company provides a high degree of personalized 
service and timely response to loan applications.  Historically, the 
Company's customers have been willing to pay the Company's loan origination 
fees and interest rates, which are typically higher than those charged by 
conventional lending institutions.

     The Company has maintained conservative underwriting guidelines when 
originating and purchasing loans.  The Company has originated loans with 
higher levels of credit risk to earn origination fees, however, it 
generally sells such loans on a servicing released basis.  In conjunction 
with the Company's aggressive collection and foreclosure procedures, this 
approach has allowed the Company to historically maintain low delinquency 
and loan losses relative to others in the industry. 

Marketing and Sales 

Marketing 

     The Company's marketing efforts are designed to identify, locate and 
focus on individuals who, based on the Company's historic customer profiles, 
display a statistical likelihood for becoming a consumer of the Company's 
products and services and, at the same time, satisfying the Company's 
underwriting guidelines.  The Company believes its focused marketing 
approach makes a more efficient use of its marketing resources and leads to 
a higher marketing success rate than a broad indiscriminate marketing 
approach aimed at a wide range of homeowners.

                                      1

<PAGE>

     The Company utilizes a proprietary marketing methodology to 
subjectively analyze the Company's historical customer base to identify 
characteristics common to its customers.  These common characteristics are 
integrated with information obtained from a number of outside sources 
related to the homeowner pool in new or existing markets.  The 
characteristics of individual homeowners and their properties in the 
homeowner pool are compared with characteristics common to the Company's 
historical customer base to identify and locate homeowners ("Targeted 
Homeowners") with characteristics that make them likely to become customers 
for the Company's products and services and to satisfy its underwriting 
guidelines. 

     In general, the factors analyzed by the Company in identifying Targeted 
Homeowners include prior consumer finance borrowing, home value, the amount 
of equity in the home and the length of time a homeowner has owned the home.  
Credit problems, a lack of a significant credit history and prior borrowings 
from consumer finance companies indicate a homeowner is unlikely to be able 
to obtain loans from conventional lending institutions, and thus is a more 
likely candidate for the Company's products and services.  Similarly, the 
Company's experience indicates that a longer ownership period usually 
results in significant equity in the home, creating an opportunity for a 
loan that will satisfy the Company's conservative loan-to-value 
requirements.  Management continually refines the Company's proprietary 
marketing methodology.  The Company monitors the performance of its 
marketing campaigns in evaluating the effectiveness of its methodology in 
identifying Target Homeowners in each market.

     While the Company has utilized mass marketing in the past, the 
Company's experience has proven that focusing its marketing efforts on 
Targeted Homeowners produces a greater yield for its marketing expenditures 
and leads to more opportunities for loan originations.  The majority of 
Targeted Homeowners who become customers of the Company generally use the 
proceeds of their loans to lower their monthly payments by consolidating 
outstanding mortgage and consumer debt or to make home improvements. 

Targeted Marketing   

     By focusing its marketing efforts on Targeted Homeowners who are likely 
to satisfy the Company's underwriting guidelines, the Company expends fewer 
resources on homeowners and properties that would not satisfy such 
guidelines.  The Company's marketing personnel, including telemarketing 
staff, appraisers, loan officers, branch managers and headquarters 
personnel, are trained to be aware of the Company's underwriting guidelines 
and, as described below, review each loan lead to focus on Targeted 
Homeowners whose overall qualifications and properties satisfy such 
guidelines.

Mailing Campaigns and Telemarketing 
		
     The Company's mailing and telemarketing campaigns focus on Targeted 
Homeowners in the communities surrounding its 24 retail branch offices by 
utilizing many different mailing campaigns focusing on the multiple benefits 
of the Company's services and loan products.  The Company distributes over 
1.5 million pieces of mail monthly.  All of the Company's mailing campaigns 
originate from its mail processing center in Orange, California.  The 
Company's mailing campaigns result in over 4,000 inbound loan inquiry calls 
from Targeted Homeowners monthly.  The Company continually monitors the 
effectiveness of each of its mailing campaigns and continues, modifies or 
discontinues a particular mailing campaign based on the results of such 
monitoring. 

     The Company's telemarketing department handles both inbound and 
outbound calls from and to Targeted Homeowners and existing customers.  
Substantially all of the inbound calls are from Targeted Homeowners 
responding to the Company's mailing campaigns.  The Company monitors the 
effectiveness of each mailing campaign by tracking which campaign is the 
source of each inbound call.  The outbound telemarketing department uses 
computerized predictive dialers to continually solicit the Targeted 
Homeowners and the Company's current borrowers.  Telemarketing 
representatives also place follow-up calls to prospective borrowers who have 
previously set and later canceled appointments to have a Company appraiser 
visit and inspect the subject property and obtain information about the 
applicant (an "Appraisal Appointment"), failed to show up for an appointment 
with a loan officer in a retail branch office to prepare loan documents (a 
"Sales Appointment") or declined a loan program offered to them by the 
Company.	

                                      2
<PAGE>

     The Company understands its practice to be different from that of its 
competitors in that the centralized telemarketing department reviews all 
prospective customers and produces all initial Appraisal Appointments with 
Targeted Homeowners.  The centralized telemarketing department, not the 
retail branch office personnel, is responsible for converting loan inquiries 
into appointments.  The Company believes its centralized telemarketing 
practice creates greater operating efficiencies by allowing task 
specialization and reallocation of telemarketing resources to meet 
geographic needs. 

     The telemarketing representative's responsibility is to sell the 
benefits of the Company's products and services, obtain information about 
the Targeted Homeowner, the subject property, equity in the subject property 
and the purpose of the loan and, assuming this initial information satisfies 
the Company's underwriting guidelines, schedule an Appraisal Appointment.  
By focusing on the equity in the subject property, the telemarketing phase 
concentrates on Targeted Homeowners and properties whose characteristics 
satisfy the Company's underwriting guidelines.

     Individual telemarketing representatives are rated and compensated 
based on the number of Appraisal Appointments set.  The Company monitors the 
performance of its telemarketing staff on a weekly and monthly basis.

Appraisal  

     The Company's valuation process occurs throughout the loan application 
process.  In some cases, the first stage valuation occurs immediately after 
a telemarketing representative sets an Appraisal Appointment.  Staff at the 
Company's headquarters gather publicly available information with respect to 
recent sales of comparable properties in the same area as the subject 
property.  The estimated value of the subject property is verified by the 
comparable sales data.  Only properties that satisfy this stage of the 
initial underwriting process will be verified and forwarded to the 
respective retail branch offices for Appraisal Appointments. 

     The property is appraised typically within two days of the initial 
telemarketing contact.  This appraisal, which provides a valuable marketing 
opportunity, is the applicant's first face-to-face contact with the 
Company's representatives, and the Company stresses to its appraisers the 
importance of the marketing aspect of their positions.  The appraiser's 
responsibilities are to obtain additional information and required 
documentation about the applicant, perform a complete technical appraisal of 
the subject property and schedule a Sales Appointment.  The appraiser 
gathers and delivers to the retail branch office the applicant's relevant 
documents, including the current mortgage documents, if any, evidence of 
ownership of the subject property and information regarding other bills to 
be refinanced with the new loan. 

     Appraisers at the Company's headquarters perform a desk review of the 
property appraisal on the following loan applications: (i) all properties 
with a market value above $150,000, (ii) all loan applications with a 
combined loan-to-value ratio equal to or greater than 55% (62% in 
California), (iii) all loan applications prepared by a new retail branch 
office for the first 90 days of its existence, (iv) all income properties, 
(v) all properties with values less than $100,000 and (vi) approximately 10% 
of the loan applications not otherwise reviewed. 

     Unlike many of its competitors, the Company does not use independent 
fee-based appraisers.  Instead, the Company recruits, hires and trains its 
own field and desk appraisers.  In connection with each securitization of 
the Company's loans, independent appraisers have conducted appraisals of 
samples of the subject properties that are the collateral for the 
securitized loans.  The appraisals performed by the Company's appraisers 
have been within 1.5% of the aggregate appraisal values on securitization 
pools to date as calculated by the independent appraisers. 

     The Company hires certified appraisers in those states which require 
such designation.  Individual retail branch office appraisers are rated and 
compensated based on the number of Sales Appointments set and the ongoing 
quality of the appraisals performed.  The Company monitors the performance 
of its appraisers on a weekly and monthly basis.

Loan Production

     The retail branch offices are responsible for the next step in the 
sales process that, if successful, converts the Sales Appointments set by 
the appraisers into underwritten loan files to be submitted to the Company's 
quality control department.  Each Sales Appointment allows the sales 
personnel to clearly determine the applicant's need for financing, tailor a 
loan program to fit the applicant's financial needs, perform preliminary 
underwriting and provide to the applicant a choice of loan products and a 
detailed explanation thereof.

                                      3

<PAGE>

     The loan officer utilizes a loan origination software system developed 
by the Company to preliminarily determine an applicant's qualification for 
the various products of the Company and the terms applicable to such 
products.  The loan origination software system incorporates the Company's 
underwriting guidelines with respect to collateral, credit quality, 
character, and capacity to repay.  For over a decade, the Company has relied 
upon a proprietary credit scoring system in its underwriting process.  Prior 
to each Sales Appointment, the retail branch loan officer or branch manager 
will run a credit report for each applicant and determine the applicant's 
overall credit score.  All accounts on an applicant's credit report, 
including mortgage loans, are reviewed and assigned a value derived from the 
performance of the account.  Based upon  credit scores, an applicant is 
preliminarily designated as an "A", "B", "C" or "D" risk.  This designation 
is reviewed by the Company's centralized quality control department before 
final underwriting.  

     The typical retail branch office consists of a branch manager, one or  
two loan officers, one or two appraisers and one or two loan processors.  
The Company generally recruits and hires its loan officers in the location 
of the branch office.  The Company focuses on candidates with professional 
sales experience for loan officer positions.  Loan officer and branch 
manager candidates are required to successfully complete four weeks of sales 
and technical underwriting training to learn the Company's sales 
presentation and lending procedures prior to their placement in a retail 
branch office.  Existing retail branch office sales personnel return to 
corporate headquarters quarterly for continuing sales training. 

     Loan officers and branch managers are rated and compensated based on 
the amount of loans funded.  The Company strives to develop its loan 
officers and to promote the most qualified loan officers to branch managers.  
The Company monitors the performance of its loan officers and branch 
managers on a weekly and monthly basis.

Repeat Business and Preservation of Loan Portfolio 	

     A significant number of the Company's borrowers are repeat customers of 
the Company.  Once a loan is funded, the Company maintains a relationship 
with its borrowers to ensure borrower satisfaction and to respond to any 
future borrowing needs.

     Many competitors in the Company's markets obtain publicly available 
information with respect to the Company's borrowers and solicit such 
borrowers for additional borrowing or refinancing.  The Company's portfolio 
refinancing programs have allowed it to retain a significant number of 
borrowers who might otherwise have obtained additional borrowings or 
refinanced their existing mortgages with the Company's competitors.

Loan Origination and Acquisition Through Brokers and Lenders

     The Company has historically augmented its loan production by 
purchasing loans from other affiliated, unaffiliated and related party 
brokers and lenders.  The Company has entered into mortgage loan purchase 
agreements with each originator which require specified minimum levels of 
experience in origination of non-conventional mortgage loans and provide 
representations, warranties and buy-back provisions which are not less 
restrictive than representations and warranties required of the Company for 
the securitization of its own loan originations.

Underwriting 

     The Company views its underwriting process as beginning with the 
marketing of its products and services.  The Company has designed its 
marketing programs to screen out those homeowners and subject properties 
that do not meet the Company's underwriting guidelines.  As an integral part 
of its marketing process, the Company trains its telemarketing 
representatives, appraisers and loan officers to evaluate each subject 
property in light of  the Company's underwriting guidelines.
	
     The main underwriting and quality control functions are centralized at 
the Company's headquarters.  The most significant of the Company's 
underwriting functions are performed by senior management.  The Company 
maintains a quality control department and a loan committee.  Each loan 
application file is reviewed by the Company's loan committee.  The loan 
committee works in conjunction with the quality control department to 
provide a final review of the underwriting and terms of a potential loan.  
The Company strives to process each loan application received from its 
retail branch office network as quickly as possible in accordance with the 
Company's loan application approval procedures.  Accordingly, most loan 
applications receive decisions within three days of receipt and are funded 
within 15 days of approval.

     Each retail branch office submits executed initial applications to the 
quality control department.  The quality control department reviews, in its 
entirety, every loan file forwarded by retail branch offices and wholesale 
originators.  Loan files are reviewed for completeness, accuracy, and 
compliance with the Company's underwriting criteria and applicable 
governmental regulations.  Based on their initial review, quality control 
personnel inform retail branch office personnel of any additional 
requirements that must be fulfilled to complete the loan file, such as 
additional proof of income. 

                                      4

<PAGE>

     After a full review by the quality control department, each initial 
loan application file is forwarded to the loan committee for approval.  
These documents are again subjected to a full review.  Loans that clearly 
conform to the Company's underwriting guidelines are approved at the first 
level.  Other loans which present more complicated underwriting issues are 
reviewed by senior underwriting personnel. 

     The decision of the loan committee to approve a loan is based upon a 
number of factors, including the appraised value of the property, the 
applicant's creditworthiness and the Company's perceptions of the 
applicant's ability to repay the loan. With respect to the value of the 
collateral, loans secured by first mortgages are generally limited to a 
maximum 75% combined loan-to-value ratio; however, the Company will 
originate loans with a combined loan-to-value ratio of up to 85% for loans 
expected to be sold on a whole loan basis.  Loans secured by second 
mortgages are limited to a maximum 70% combined loan-to-value ratio. The 
Company has established classifications with respect to the credit profiles 
of loans and subject properties based on certain of the applicant's 
characteristics.  Each loan application is placed into one of the Company's 
four ratings ("A" through "D", with subratings within those categories), 
depending upon the following three primary factors: (i) an applicant's 
credit score under the Company's proprietary credit scoring system which 
uses information obtained from national credit bureau reports, (ii) combined 
loan-to-value ratios and (iii) debt-to-income ratios.  Terms of loans made 
by the Company vary depending upon the classification of the application.  
Applications with lower classifications generally are subject to higher 
interest rates.  A loan application must meet the following minimums with 
respect to each of the three primary factors to be included in the 
applicable ratings shown below: 

                                         "A"      "B"        "C"      "D"
                                      --------  --------  --------  --------
Borrower credit score                  100-87    86-64      63-36     35-0
Maximum combined loan-to-value ratio     75%       73%       72%       65%
Maximum debt-to-income ratio             40%       49%       59%       60%

     In addition to the above criteria, the Company requires higher interest 
rates on loans with certain risk factors.  These factors include an 
unsubstantiated employment history, a recent foreclosure proceeding, a 
number of recent delinquent payments on an existing mortgage, a recent 
bankruptcy filing, the presence of a senior mortgage or zoning restrictions 
on the subject property or a combined loan-to-value ratio in excess of 71%. 

     During the past three years, the Company's mix of loans by risk 
classification has not changed significantly.  The following table reflects 
the risk classifications of the Company's loan originations and purchases 
for the year ended December 31, 1996:

                                                               Initial
                                                               Weighted
                                                    % of       Average
               Loan Classification      Amount      Total       Coupon
-----------------------------------   ---------   --------   -----------
                                          (Dollars in thousands)
"A" Risk...........................    $167,991       52%         9.0%
"B" Risk...........................      77,753       24          9.6
"C" Risk...........................      52,661       16         10.4	
"D" Risk...........................      26,083        8         11.4
                                      ---------   --------  
Total..............................    $324,488      100%         9.6
                                      =========   ========

                                      5

<PAGE>

Loan Originations and Purchases

     The following table highlights selected information relating to the 
origination and purchase of loans by the Company for the years ended 
December 31:  

                                           1996         1995         1994
                                        ----------   ----------   ----------
Type of property securing loan:
     Single Family.......................  95.1%        95.0%        92.4%
     Multi Family........................   3.3          2.7          5.4
     Planned Unit Development and other..   1.6          2.3          2.2
                                        ----------   ----------   ----------
                                          100.0%       100.0%       100.0%
                                        ==========   ==========   ==========

Type of mortgage securing loan: 								
First Mortgage...........................  99.3%        94.5%        95.4%
Second Mortgage..........................   0.7          5.4          4.4	
Third Mortgage...........................                0.1          0.2	
                                        ----------   ----------   ----------
                                          100.0%       100.0%       100.0%
                                        ==========   ==========   ==========
								
Weighted average interest rate...........   9.6%        10.3%         8.7%
Weighted average initial combined 
     loan-to-value ratio (1).............  62.2         59.4         56.2	

     (1)  The combined loan-to-value ratio of a loan secured by a senior 
mortgage is determined by dividing the amount of the loan by the appraised 
value of the mortgaged property at origination.  The combined loan-to-value 
ratio of a loan secured by any junior mortgage is determined by taking the 
sum of the loan secured by such mortgage and any senior mortgages and 
dividing the total by the appraised value of the mortgaged property at 
origination.

Loan Sales

      Securitization

     In a securitization, the Company sells a pool of loans to a REMIC trust 
in exchange for a residual interest and regular interests.  The Company 
retains the residual interest and immediately sells the regular interests.  
The proceeds are used to repay borrowings under the warehouse financing 
facilities.  The holders of the regular interests are entitled to receive 
scheduled principal collected on the pool of securitized loans and interest 
at the pass-through interest rate on the certificate balance.  As holder of 
the residual interest, the Company is entitled to receive certain excess 
cash flows.  These excess cash flows are calculated as the difference 
between (a) principal and interest paid by borrowers and (b) the sum of (i) 
pass-through principal and interest paid to holders of the regular 
interests, (ii) trustee fees, (iii) third party credit enhancement fees, 
(iv) servicing fees and (v) loan losses.  The Company's right to receive 
these excess cash flows begins after certain overcollateralization 
requirements, which are specific to each securitization, have been met.

     To increase the profitability from the sale of securitized loans, the 
Company arranges for credit enhancement to achieve an improved credit rating 
on the regular interests issued.  This credit enhancement generally takes 
the form of an insurance policy, issued by a monoline insurance company, 
ensuring the holders of the regular interests of timely payment of the pass-
through and principal interest.  In addition, the pooling and servicing 
agreements that govern the distribution of cash flows from the loan pool 
included in the REMIC trusts typically require overcollateralization as an 
additional means of credit enhancement. The purpose of the 
overcollateralization is to provide a source of payment in the event of 
higher than anticipated loan losses.  Overcollateralization requirements may 
include an initial deposit, the sale of loans at less than par, or retention 
in the REMIC trust of collections from the pool until a specified 
overcollateralization amount has been attained.  This retention of excess 
cash flow creates a faster amortization of the scheduled balance of the 
regular interests than the amortization of the principal balance of the 
securitized loan pool. Losses resulting from defaults by borrowers on a 
payment of principal or interest on the loans in the securitized pool will 
reduce the overcollateralization to the extent that funds are available and 
may result in a reduction in the value of the residual interests held by the 
Company.  If payment defaults exceed the amount of overcollateralization and 
excess cash flows, the insurance policy will pay any further losses 
experienced by holders of the regular interests in the related REMIC trust. 

                                      6

<PAGE>

     Generally, the Company sells loans at face value to a REMIC trust, 
except for when it sells loans at less than par for overcollateralization 
purposes.  Loans are sold without recourse except for certain 
representations and warranties provided by the Company.  Under the terms of 
the pooling and servicing agreements the Company may be required either to 
repurchase or to replace loans that do not conform to such representations 
and warranties.  To date, the Company has not been required to substitute or 
repurchase any such loans.

     The Company retains the right to service loans it securitizes.  In 
addition to management servicing fees, the Company also receives prepayment 
and other ancillary servicing fees on securitized loans. 

Whole Loan Sales

     Certain loans originated or purchased by the Company are not chosen for 
inclusion in a REMIC trust.  These loans may include loans with higher 
combined loan-to-value ratios and/or loans that have increased credit risk.  
The Company will originate these loans to earn the origination fees and will 
then sell such loans to wholesale purchasers on a servicing released basis 
to avoid credit risks related to such loans.  The Company anticipates that 
it will continue to sell certain loans on a whole loan basis. 

     Prior to 1992, the Company sold its loan origination volume to private 
investors.  Since the Company's utilization of securitizations in 1992, its 
use of loan sales to private investors has declined.  The Company has 
retained the rights to service loans it has sold to private investors. 

Interest Rate Risk Management  

     The Company's profitability is in part determined by the difference, or 
"spread", between the effective rate of interest receivable on the loans 
originated or purchased by the Company and the pass-through interest rates 
payable to regular interests issued in securitizations.  After a loan is 
originated or purchased and while it is held pending sale or securitization,  
the spread can be adversely affected by increases in the interest rate 
demanded by purchasers or investors in the Company's securitizations. Whole 
loan sales by the Company are generally to other companies with a higher 
tolerance for credit risk who purchase loans from the Company to augment 
their own securitization volume.

     The Company has implemented a hedging program designed to provide a 
level of protection against the impact of rapid changes in interest rates on 
the value of fixed rate loans from the time the Company commits to fund or 
purchase such loans to the date of their securitization or sale.  The 
Company does not hedge the interest rate risk associated with holding 
adjustable rate mortgages pending their securitization or sale due to the 
decreased significance of such risk as the pass-through rates for regular 
interests related to the Company's adjustable rate mortgage pools are also 
adjustable.

     The Company's hedging program was initiated in 1994.  During 1996, 1995 
and 1994, hedging transactions were limited to selling short United States 
Treasury securities and prefunding loan originations in its securitizations.  
United States Treasury securities are utilized by the Company due to the 
liquidity of the market for such securities and the high degree of 
correlation between such securities and the pass-through interest rates for 
regular interests in the Company's fixed rate mortgage pools.  Prefunding 
allows the Company to fix the relationship between the interest rates 
charged on the loans and the pass-through rates for the regular interests by 
permitting the Company to deliver loans to a REMIC trust after the date of 
its closing.

     The Company may utilize various financial instruments in its hedging 
activities.  The nature and quantity of hedging transactions are determined 
by the Company's management based on various factors, including market 
conditions and the expected volume of mortgage loan originations and 
purchases.  To decrease market risk, only highly liquid instruments are 
utilized in the Company's hedging activities.  By their nature, however, all 
such instruments involve risks, and the maximum potential loss may exceed 
the value at which such instruments are carried.  As is customary for these 
types of instruments, the Company does not require collateral or other 
security from counterparties to these instruments.  The Company manages its 
credit exposure to counterparties through credit approvals, credit limits 
and other monitoring procedures.  

                                      7

<PAGE>

Servicing

     The Company retains the right to service the loans it originates and 
purchases (other than loans sold to wholesale purchasers).  Loan servicing 
includes collecting payments from borrowers, remitting payments to investors 
who have purchased  loans, investor reporting, accounting for principal and 
interest, contacting delinquent borrowers, conducting foreclosure 
proceedings and disposing of foreclosed properties.  The Company's servicing 
portfolio includes 8,895 loans with an outstanding balance of $641.2 million 
as of December 31, 1996.  The Company receives management servicing fees 
ranging from 0.5% to 2.5% per annum for fixed rate loans and 0.5% to 1.0% 
per annum for adjustable rate loans, based upon the outstanding balance of 
loans in REMIC trusts.  The Company currently services only Company 
originated or purchased loans. 

     The Company has installed a sophisticated computer-based loan servicing 
system that it believes enables it to provide effective and efficient 
processing of loans.  The system, which is able to service fixed and 
adjustable rate loans, provides the Company with, among other things, 
payment-processing, cashiering, collection and reporting functions.

     The Company believes its aggressive collection practices contribute to 
the relatively low delinquency and loss rates on its servicing portfolio.  
The following table illustrates the timeline of the Company's collection 
practices, assuming (i) the loan is originated in California and (ii) a ten 
day grace period applies by contract or under applicable law: 
	
                   Time                               Event
-------------------------------------  -----------------------------------
1st day of the month.................  Borrower loan payment due. 

11th day of the month................  Payment not received is late.
		
12th day of the month................  Notice of past due payment mailed
                                       to borrower.  
		
20th day of the month................  Foreclosure notice mailed to
                                       borrower.
		
26th day of the month................  Final notice mailed to borrower.
		
42 days after due date...............  File forwarded to foreclosure 
                                       department which records notice of 
                                       default after the 45th day of 
                                       delinquency.
		
After notice of default or similar
   notice is recorded................  Borrower informed of status and the 
                                       Company's reinstatement period 
                                       dates.
		
During the reinstatement period......  Pre-foreclosure property valuation 
                                       performed.
		
End of the reinstatement period......  Notice of trustee's sale recorded 
                                       and trustee's sale date scheduled.
                                       Property sold to a third party or 
                                       acquired on behalf of the Company 
                                       or a REMIC trust. 

     The borrower is contacted by telephone prior to recording the notice of 
default to inform the borrower of the situation.  If the borrower does not 
bring the loan current within the reinstatement period, a notice of sale is 
published and a trustee's sale date is scheduled.  During this period of 
time, the Company performs a pre-foreclosure valuation of the property to 
determine whether changes in the value of the property have occurred since 
the date of origination.  If the loan is not reinstated, the property is 
either sold to a third party at the trustee's sale or acquired on behalf of 
the Company.  The Company forecloses as quickly as state regulations allow.  
The Company contracts on a nationwide basis with several independent 
foreclosure service companies to facilitate the foreclosure process for 
properties located outside California.  For delinquent loans originated 
within California, the Company performs foreclosure procedures internally.  
Properties acquired by the Company are managed with the objective of 
immediate sale. 

     In other states, the Company's collection procedures described above 
may occur sooner or later depending upon state specific foreclosure 
regulations. 

                                      8

<PAGE>

     The Company's loan servicing software also allows the Company to track 
and maintain hazard insurance information.  Periodic expiration reports list 
all policies scheduled to expire within 30 days.  When policies  lapse, a 
letter is issued advising the borrower of the lapse and that the Company 
will obtain force placed insurance at the borrower's expense.  Additionally, 
the Company maintains a blanket insurance policy that provides fire 
insurance coverage for the Company in the event that the Company fails to 
obtain force placed insurance in a timely manner upon expiration of the 
homeowner's policy. 

     Regulation and practices in the United States regarding the liquidation 
of properties (i.e. foreclosure) and the rights of the mortgagor in default 
vary greatly from state to state.  Loans originated by the Company are 
secured by mortgages, deeds of trust, trust deeds, security deeds or deeds 
to secure debt, depending upon the prevailing practice in the state in which 
the property securing the loan is located.  Depending on local law, 
foreclosure is effected by judicial action and/or non-judicial sale, and is 
subject to various notice and filing requirements.  If foreclosure is 
effected by judicial action, the foreclosure proceedings may take several 
months.  

     In general, the borrower, or any person having a junior encumbrance on 
the real estate, may cure a monetary default by paying the entire amount in 
arrears plus other costs and expenses incurred in enforcing the obligation 
during a statutorily prescribed reinstatement period. 

     There are a number of restrictions that may limit the Company's ability 
to foreclose on a property.  A lender may not foreclose on the property 
securing a junior mortgage loan unless it forecloses subject to each senior 
mortgage.  Moreover, if a borrower has filed for bankruptcy protection, a 
lender may be stayed from exercising its foreclosure rights.  Also, certain 
states provide a homestead exemption that may restrict the ability of a 
lender to foreclose on residential property.  In such states, the Company 
requires the borrower to waive his or her right of homestead.  Such waivers 
of homestead rights may not be enforceable in certain states.

     Although foreclosure sales are typically public sales, frequently no 
third party purchaser bids in excess of the amount of the lender's lien.  
Such a lack of bidding is due to several factors, including the difficulty 
of determining the status of title to the property, the possible 
deterioration of the property during foreclosure proceedings and the 
requirement that the purchaser pay for the property in cash or by cashier's 
check.  Thus, the foreclosing lender often purchases the property from the 
trustee and subsequently re-markets the property.  Depending upon market 
conditions, the proceeds of the subsequent resale by the Company may not be 
adequate to cover the investment in the loan. 

Current Markets and Expansion Plans 

Current Markets  

     The Company originates loans through 23 retail branch offices in 13 
states in the United States and one retail branch office in the United 
Kingdom.  The Company believes that originating loans through an extensive 
retail branch office network represents the most profitable loan origination 
strategy due to the significant level of loan origination fees earned by the 
Company.  Additionally, such a strategy allows the Company to maintain its 
underwriting quality standards when compared to competitors using 
independent mortgage brokers.

     Although the Company is licensed to originate loans in 13 states and 
the United Kingdom, its business has historically been concentrated in 
California.  While this concentration has declined, California remains a 
significant part of the Company's business and contributed 37.9% of the 
Company's total loan originations and purchases for 1996.  Expansion outside 
California began in late 1994.  The number of retail branch offices within 
California has declined from a historical high of 11 in 1992 to seven as of 
February 28, 1997.

                                      9

<PAGE>

     The following table shows the geographic distribution of the Company's 
loan originations and purchases for the years ended December 31: 

                                          1996        1995         1994
                                       ----------   ---------   ----------
United States	
  California......................        37.9%       43.0%        94.3%
  Illinois........................        14.2        14.1
  Washington......................        10.9        14.9          3.4
  Florida.........................         6.7         8.1          0.1
  Oregon..........................         5.6         5.9          0.2	
  Colorado........................         4.2         6.7          0.4	
  Pennsylvania....................         3.9
  Utah............................         3.0         2.5
  New Jersey......................         3.0
  Others states...................         9.7         4.8          1.6	
United Kingdom....................         0.9
                                       ----------   ---------   ----------
  Total...........................       100.0%      100.0%       100.0%
                                       ==========  ==========   ==========

Nationwide and International Geographic Expansion 
		
     The Company intends to continue to expand its existing retail branch 
office network in the United States and in the United Kingdom.  The Company 
currently plans to open at least four new retail branch offices per year.  
The Company's expansion strategy involves (i) identifying areas with 
demographic statistics comparable to existing markets in which the Company 
has been successful in originating loans, (ii) understanding each new 
market's regulatory requirements and tailoring the Company's loan programs 
and practices to comply with such requirements and (iii) identifying and 
training branch managers and loan officers for each new retail branch 
office. 

     The Company believes that its products and services are best suited for 
those housing markets with home values near the nation's averages.  After 
identifying a potential new market, the Company contracts with regional or 
national companies to gather publicly available information with respect to 
that market and to integrate such information with the Company's proprietary 
marketing methodology.  The Company produces a list of Targeted Homeowners 
that the Company believes, based on its historic customer profile, are 
likely to utilize the Company's products and services and satisfy the 
Company's underwriting guidelines than the average homeowner.  The Company 
then focuses its marketing efforts in the new market on the Targeted 
Homeowners. 

     The Company has generally entered into short term leases for its retail 
branch offices.  Additionally, the Company generally recruits and hires the 
personnel required to staff retail branch offices from the area near the new 
market.  Branch managers of new retail branch offices are generally branch 
managers of existing retail branch offices or loan officers promoted from 
existing retail branch offices. 

Competition 

     As a consumer finance company, the Company continues to face intense 
competition.  Traditional competitors in the financial services business 
include other mortgage banking companies, mortgage brokers, commercial 
banks, credit unions, thrift institutions, credit card issuers and finance 
companies.  Many of these competitors in the consumer finance business are 
substantially larger and have considerably greater financial, technical and 
marketing resources than the Company.  Competition can take many forms 
including convenience in obtaining a loan, customer service, marketing and 
distribution channels, amount of the loan, loan origination fees and 
interest rates.  In addition, the current level of gains realized by the 
Company and its existing competitors on the sale of loans could attract 
additional competitors into this market with the possible effect of lowering 
gains on future loan sales owing to increased competition.

     The Company believes that it is able to compete on the basis of 
providing prompt and responsive service, consistent underwriting and 
competitive loan programs to borrowers whose needs are not met by 
conventional lending institutions.

                                      10

<PAGE>

Regulation

     The Company's business is subject to extensive regulation at both the 
Federal and state level.  Regulated matters include loan origination, credit 
activities, maximum interest rates and finance and other charges, disclosure 
to customers, terms of secured transactions, the collection, repossession 
and claims handling procedures utilized by the Company, multiple 
qualification and licensing requirements for doing business in various 
jurisdictions and other trade practices.

     Truth in Lending. The Truth in Lending Act ("TILA") and Regulation Z 
promulgated thereunder contain certain disclosure requirements designed to 
provide consumers with uniform, understandable information with respect to 
the terms and conditions of loans and credit transactions in order to give 
them the ability to compare credit terms.  TILA also guarantees consumers a 
three day right to cancel certain credit transactions including loans of the 
type originated by the Company.  Management of the Company believes that it 
is in compliance with TILA in all material respects.  If the Company were 
found not to be in compliance with TILA, aggrieved borrowers could have the 
right to rescind their loans and to demand, among other things, the return 
of finance charges and fees paid to the Company.

     In September 1994, the Riegle Act was enacted. Among other things, the 
Riegle Act makes certain amendments to TILA (the "TILA Amendments").  The 
TILA Amendments generally apply to mortgage loans (other than mortgage loans 
to finance the acquisition or initial construction of a dwelling), with (i) 
total loan origination fees and other fees upon origination in excess of the 
greater of eight percent of the total loan amount or a certain dollar amount 
(currently $400) or (ii) an annual percentage rate of more than ten 
percentage points higher than comparably maturing U.S. Treasury securities 
("Covered Loans").  The Company estimates that substantially all of the 
loans currently originated or purchased by the Company are Covered Loans.
	
     The TILA Amendments impose additional disclosure requirements on 
lenders originating Covered Loans and prohibits lenders from engaging in a 
pattern or practice of originating Covered Loans that are underwritten 
solely on the basis of the borrower's home equity without regard to the 
borrower's ability to repay the loan.  The Company will, consistent with its 
practices with respect to all loans, apply to all Covered Loans underwriting 
criteria that take into consideration the borrower's ability to repay.

     The TILA Amendments also prohibit lenders from including prepayment fee 
clauses in Covered Loans to borrowers with a monthly debt-to-income ratio in 
excess of 50% or Covered Loans used to refinance existing loans originated 
by the same lender or an affiliate of such lender.  The Company reported 
$4.0 million, $3.2 million and $3.1 million in prepayment fee revenue in 
fiscal year 1996, 1995 and 1994, respectively. The Company will continue to 
collect prepayment fees on loans originated prior to the October 1995 
effectiveness of the TILA Amendments and on non-Covered Loans as well as on 
Covered Loans in permitted circumstances.  Compliance with the TILA 
Amendments may cause the level of prepayment fee revenue to decline in 
future years.  The TILA Amendments impose other restrictions on Covered 
Loans, including restrictions on balloon payments and negative amortization 
features, which the Company does not believe will have a material impact on 
its operations.

     Other Lending Laws.  The Company is also required to comply with the 
Equal Credit Opportunity Act of 1974, as amended ("ECOA"), which prohibits 
creditors from discriminating against applicants on certain prohibited 
bases, including race, color, religion, national origin, sex, age or marital 
status.  Regulation B promulgated under ECOA restricts creditors from 
obtaining certain types of information from loan applicants.  Among other 
things, it also requires certain disclosures by the lender regarding 
consumer rights and requires lenders to advise applicants of the reasons for 
any credit denial.  In instances where the applicant is denied credit or the 
rate or charge for loans increases as a result of information obtained from 
a consumer credit agency, another statute, the Fair Credit Reporting Act of 
1970, as amended, requires lenders to supply the applicant with the name and 
address of the reporting agency.  In addition, the Company is subject to the 
Fair Housing Act and regulations thereunder, which broadly prohibit certain 
discriminatory practices in connection with the Company's business.  The 
Company is also subject to the Real Estate Settlement Procedures Act of 
1974, as amended.

     In addition, the Company is subject to various other Federal and state 
laws, rules and regulations governing among other things, the licensing of, 
and procedures that must be followed by, mortgage lenders and servicers, and 
disclosures that must be made to consumer borrowers.  Failure to comply with 
such laws, as well as with the laws described above, may result in civil and 
criminal liability.

                                      11

<PAGE>

     Insurance Regulatory Laws.  As a condition to funding its loans, the 
Company requires each borrower to obtain and maintain a policy of insurance 
providing coverage, at an amount equal to the greater of the replacement 
cost or loan amount, for improvements on any real property securing the 
borrower's loan. If the borrower fails to provide such coverage prior to 
closing of the borrower's loan or if the borrower's coverage is subsequently 
canceled or not renewed at any time during the loan period and the borrower 
fails to obtain new coverage, the Company will provide coverage on the 
borrower's behalf under policies insuring the Company's interest in the 
collateral.  Such practice is commonly referred to as "forced placement" of 
insurance.  The Company receives a fee in connection with its placement of 
such insurance in California, which activity is not required to be licensed.  

     Insurance which is force placed is subject to regulation under TILA, 
the National Flood Insurance Act, and state insurance regulatory and lender 
statutes.  Such laws and regulations generally impose disclosure and notice 
requirements which must be satisfied prior to forced placement of coverage, 
limitations on the amount of coverage that a lender may obtain to protect 
its interest in the collateral, and restrictions on fees and charges that 
the Company may assess in connection with such insurance.

     In addition, in California only, the Company provides insurance agency 
services with respect to credit life insurance and credit disability 
insurance.  The Company's sale of these insurance products in California is 
subject to statutes and regulations applicable to insurance producers.

     Failure to comply with any of the foregoing federal and state laws and 
regulations could result in the imposition of civil penalties on the 
Company, class action lawsuits and administrative enforcement actions.

     United Kingdom Regulations.  The Company's mortgage business in the 
United Kingdom is subject to regulations promulgated under the United 
Kingdom Consumer Credit Act of 1974 (the "CCA") with respect to loans made 
to individuals or partnerships with principal balances of 15,000 UK pounds or
less.  Loans with principal balances in excess of 15,000 UK pounds are not 
currently regulated within the United Kingdom.  The CCA and regulations 
promulgated thereunder, among other things, impose licensing obligations on 
the Company's United Kingdom subsidiaries, set down certain requirements 
relating to the form, content, legibility, execution and delivery of loan 
documents, restrict communication with the borrower prior to completion of a 
transaction, require information and notice of enforcement to be given to 
the borrower, require rebates to the borrower on early settlement and create 
a cause of action for "extortionate credit bargains".  A license is required 
to service loans in the United Kingdom irrespective of the size of the loan. 
Failure to comply with the requirements of these rules and regulations can 
result in the revocation or suspension of the license to do business and 
render the mortgage unenforceable in the absence of a court order.

     The Company's operations in the United Kingdom involve loans with 
principal balances in excess of 15,000 UK pounds and are therefore largely 
unregulated.

Environmental Matters

     To date, the Company has not been required to perform any investigation 
or clean up activities, nor has it been subject to any environmental claims.  
There can be no assurance, however, that this will remain the case in the 
future.

     In the course of its business, the Company, generally on behalf of the 
REMIC trusts, has acquired and may acquire in the future properties securing 
loans that are in default.  Although the Company primarily lends to owners 
of residential properties, there is a risk that the Company could be 
required to investigate and clean up hazardous or toxic substances or 
chemical releases at such properties after acquisition by the Company, and 
may be held liable to a governmental entity or to third parties for property 
damage, personal injury and investigation and cleanup costs incurred by such 
parties in connection with the contamination.  In addition, the owner or 
former owners of a contaminated site may be subject to common law claims by 
third parties based on damages and costs resulting from environmental 
contamination emanating from such property.

                                      12

<PAGE>

Employees

     As of February 28, 1997, the Company had a total of 404 employees.  The 
Company has 235 employees working at its corporate headquarters.  None of 
the Company employees is covered by a collective bargaining agreement.  The 
Company considers its relations with its employees to be good.

Item 2.  Properties.

     The Company leases its corporate headquarters, which are located at 
17305 Von Karman Avenue, Irvine, California, 92614-6203, from a partnership 
beneficially owned by its principal stockholder.  The Company also leases 
space for all of its retail branch offices, its mail processing center in 
Orange, California and a telemarketing office in Placentia, California.  The 
Company believes its facilities are both suitable and adequate for the 
current business activities conducted at its corporate headquarters and at 
its existing retail branch offices.

Item 3.  Legal Proceedings.

     The Company is a party to various routine legal proceedings arising out 
of the ordinary course of its business.  Management believes that none of 
these actions, individually or in the aggregate, will have a material 
adverse effect on the consolidated financial condition or results of 
operations of the Company.
	
Item 4.  Submission of Matters to a Vote of Security Holders.

     No matters were submitted to a vote of the Company's security holders 
during the quarter ended December 31, 1996. 

                                      13

<PAGE>

                                   PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder 
         Matters.  

     In July 1996, the Company's Class A Common Stock began trading under 
the symbol FACO on the NASDAQ National Market.  The following table sets 
forth the range of high and low closing sale prices of the Company's Class A 
Common Stock for the periods indicated:
  
                                         High             Low
                                     ----------       ----------
1996		
    Third Quarter                    $   25.25        $   18.63
    Fourth Quarter                   $   30.50        $   22.00

     No dividends were declared during the period covered by the above 
table.  The Company does not anticipate declaring dividends in the near 
future.  However, the Board of Directors of the Company reviews the 
Company's dividend policy at least annually in light of earnings, cash 
position and capital needs of the Company, general business conditions and 
other relevant factors.

     On February 28, 1997, the Company had approximately 7 stockholders of 
record of its Class A Common Stock.  The Company believes its Class A Common 
Stock is beneficially held by more than 2,200 stockholders.

                                      14

<PAGE>
<TABLE>

Item 6.  Selected Financial Data 

                                    FIRST ALLIANCE CORPORATION 
                                SELECTED CONSOLIDATED FINANCIAL DATA 
<CAPTION>

                                            1996 (5)     1995       1994 (3)    1993 (3)      1992
                                          ----------  ----------  ----------  ----------  ----------
                                                            (Dollars in thousands)	
<S>                                       <C>         <C>         <C>         <C>         <C>
Statement of Income Data: 														
  Gain (loss) on sale of loans.......     $  10,965   $   8,982   $  (1,547)  $   2,056   $   1,731	
  Origination fees and other.........        37,206      26,484      29,449      20,433      18,275	
  Servicing and other fees revenue...         8,854       8,614       9,106       8,989       7,145	
  Interest revenue...................        13,562      14,624       8,650       4,452       2,285	
  Total revenue......................        70,871      58,880      45,802      35,950      29,468
  Interest expense...................         2,655       4,167       3,744       2,106         871
  Noninterest expense (4)............        29,977      23,693      26,824      22,881      17,934	
  Income before income tax provision.        38,239      31,020      15,234      10,963      10,663	
  Net income.........................        32,139      30,542      14,871      10,741      10,395	
  Net income per share...............          2.59        2.87        1.40        1.01        0.98	
  Pro forma net income (1)...........        22,561      18,302       8,988       6,468       6,291	
  Pro forma net income per share (1).          1.53        1.24        0.61        0.44        0.43	
  Income before income tax provision 
    as a % of revenue................         54.0%       52.7%       33.3%       30.5%       36.2%	
  Dividends declared (2).............     $  60,080   $  12,205   $   7,341   $   5,853   $   3,987	
Balance Sheet Data: 														
  Cash and cash equivalents..........     $  27,414   $   4,019   $   5,298   $   4,387   $   1,111	
  Loans held for sale................        11,023      24,744      18,676      74,196      10,080	
  Residual interests.................        29,253      19,705      11,645       6,879       2,792	
  Total assets.......................        87,457      66,911      48,266      99,855      24,517	
  Total borrowings...................           131      19,356      14,839      68,773         966	
  Stockholders' equity...............        77,978      42,321      23,984      26,454      21,566	
Other Data: 														
  Loan originations and purchases														
    Retail branch originations.......     $ 274,813   $ 200,371   $ 151,338   $ 148,718   $  93,596	
    Portfolio refinancing originations       16,994      16,195      70,501      47,189
    Wholesale purchases..............        32,681      24,078      91,826      84,034      13,622	
                                          ----------  ----------  ----------  ----------  ----------
      Total..........................     $ 324,488   $ 240,644   $ 313,665   $ 279,941   $ 107,218	
                                          ==========  ==========  ==========  ==========  ==========
  Average retail branch origination 
    loan size........................     $      82   $      69   $      66   $      54   $      36	
  Number of retail branches..........            23          17          13          11          11	
  Weighted average interest rate 
    on loan originations and purchases         9.6%       10.3%        8.7%        9.5%       13.6%	
  Weighted average initial combined
    loan-to-value ratio:   														
      Retail branch and portfolio 
        refinancing originations.....         61.7%       58.6%       54.4%       52.4%       46.6%	
      Wholesale purchases............         67.3%       66.5%       60.5%       61.6%       61.4%	
  Weighted average loan originations
    and processing fees as a % of gross
    retail branch loan originations.          14.8%       15.3%       15.6%       17.8%       22.2%	
  Loan sales														
    Securitizations..................     $ 267,661   $ 167,974   $ 350,331   $ 141,795   $  39,024	
    Whole loan sales.................        71,864      65,251      22,857      70,554      69,298	
                                          ----------  ----------  ----------  ----------  ----------
      Total..........................     $ 339,525   $ 233,225   $ 373,188   $ 212,349   $ 108,322	
                                          ==========  ==========  ==========  ==========  ==========
  Servicing portfolio................     $ 641,191   $ 613,791   $ 555,685   $ 385,570   $ 240,221	
  Total delinquencies as a % of the 
    servicing portfolio..............          5.5%        5.8%        4.3%        4.0%        5.0%	
  Real estate owned as a % of the 
    servicing portfolio..............          0.6%        1.3%        0.6%        0.9%        0.6%	
  Losses on real estate owned as a
    % of the average servicing portfolio
    during the period................         0.35%       0.03%       0.01%       0.02%       0.02%	


(1)  Pro forma amounts reflect adjustments for Federal and state income taxes as if the Company had 
been taxed as a C corporation rather than as an S corporation.  Pro forma net income per share 
assumes that the total number of shares outstanding upon completion of the Company's initial public 
offering were outstanding in all prior periods. 
(2)  Included in dividends in 1996 is $45.0 million of S distribution dividends made in anticipation 
of the Company's initial public offering.   Historical dividends include dividends used by the 
stockholder to pay income taxes on the Company's S corporation earnings and are not necessarily 
indicative of dividends expected to be declared in the future.   
(3)  The Company typically securitizes or sells most of its loan origination and purchases within 
each year.  At the end of 1993, the Company had $74 million of loans held for sale resulting in 
increased assets and increased borrowings on the Company's warehouse financing facility.  These loans 
were sold in 1994 resulting in an increase in the ratio of loan sales to loan originations and 
purchases in 1994 as compared to other years.
(4)  During 1994 and 1993, the Company incurred legal expenses and settlement costs of $7 million and 
$2 million, respectively, related to litigation initiated in December of 1989. 
(5)  During 1996, the Company completed an initial public offering whereby 4,025,000 shares of Class 
A Common Stock were issued and the Company changed its tax status from that of an S corporation to a 
C corporation.  The Company received $63.1 million of net proceeds from the initial public offering, 
of which $45.0 million was used to pay off the S distribution notes. 
</TABLE>
                                                  15

<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition and 
          Results of Operation.

General 

     The Company is a financial services organization principally engaged in 
mortgage loan origination, purchases, sales and servicing.  Loans originated 
by the Company primarily consist of fixed and adjustable rate loans secured 
by first mortgages on single family residences.  The Company originates 
loans through its retail branch network which is currently comprised of one 
office in the United Kingdom and 23 offices in the United States, seven of 
which are located in California, two of which are located in each of 
Florida, Illinois, New York and New Jersey and one of which is located in 
each of Oregon, Washington, Colorado, Utah, Arizona, Ohio, Georgia and 
Pennsylvania.  In addition, the Company purchases loans from qualified 
mortgage originators.  The Company sells loans to wholesale purchasers or 
securitizes them in the form of REMIC trusts.  A significant portion of the 
Company's loan production is securitized with the Company retaining the 
right to service the loans. 

     In July and August of 1996, FACO completed an initial public offering 
(the "Offering") whereby 4,025,000 shares of its Class A Common Stock were 
sold to the public.  Concurrently, 10,750,000 shares of the Class B Common 
Stock of FACO were issued in exchange for all of the issued and outstanding 
shares of First Alliance Mortgage Company ("FAMCO") as part of a 
reorganization whereby FAMCO became a wholly owned subsidiary of FACO.  The 
consolidated financial condition and results of operations of the Company 
for periods prior to the date of the reorganization substantially consist of 
those of FAMCO. 

     Prior to 1992, the Company sold its loans to private investors on a 
servicing retained basis.  Since that time, the Company has sold the 
majority of its loans in the secondary market primarily through 
securitization and recently, to a lesser extent, through whole loan sales in 
which the Company does not retain servicing rights.  The Company's 
underwriting guidelines require threshold credit criteria and combined loan-
to-value limits for loans sold through securitizations.  Accordingly, the 
Company sells on a servicing released basis those loans which do not meet 
its risk criteria for securitization.  The Company retains the right to 
service loans which it has securitized. 

     The Company's strategy of originating, as compared to purchasing, the 
majority of its loan volume results in the generation of a significant 
amount of loan origination fees.  This income has allowed the Company to 
generate positive operating cash flow.  There can be no assurance, however, 
that the Company's operating cash flow will continue to be positive in the 
future. 

Certain Accounting Considerations  

     As a fundamental part of its business and financing strategy, the 
Company securitizes the majority of its loans in the form of  REMIC trusts 
whereby the loans are exchanged for regular and residual interests in the 
REMIC trusts.  A significant portion of the Company's income is associated 
with securitization activity. 

     Gains on servicing released whole loan sales equal the difference 
between the net proceeds to the Company from such sales and the loans' 
acquisition cost (for purchased loans) or net carrying value (for originated 
loans).  The net carrying value of originated loans is equal to their 
principal balance less net deferred origination fees.

     Gains on servicing retained sales of loans through securitization 
represent the difference between the net proceeds to the Company in the 
securitization and the allocated cost of loans securitized.  The allocated 
cost of the loans securitized is determined by allocating their acquisition 
cost (for purchased loans) or net carrying value (for originated loans) 
between the loans securitized and the mortgage servicing rights retained 
with respect thereto based upon their relative fair values. 

                                      16

<PAGE>

     The net proceeds of a securitization consist of the regular and 
residual interests received by the Company net of transaction costs.  The 
regular interests are immediately sold for cash by the Company.  As the 
holder of the residual interests, the Company is entitled to receive certain 
excess cash flows.  These excess cash flows are calculated as the difference 
between (a) principal and interest paid by borrowers and (b) the sum of (i) 
pass-through principal and interest to be paid to holders of the regular 
interests, (ii) trustee fees, (iii) third-party credit enhancement fees, 
(iv) servicing fees and (v) loan losses.  The Company's right to receive 
these excess cash flows begins after certain overcollaterization 
requirements, which are specific to each securitization and are used as a 
means of credit enhancement, have been met. 

     The Company carries residual interests at fair value.  As such, the 
carrying value of these securities is impacted by changes in market interest 
rates and prepayment and loss experiences of these and similar securities.  
The Company determines the fair value of the residual interests utilizing 
prepayment, credit loss and other assumptions appropriate for each 
particular securitization consistent with those an unrelated third party 
would utilize to value such securities.  To the Company's knowledge, there 
is no active market for the sale of these residual interests.  The range of 
values attributable to the factors used in determining fair value is broad.  
Accordingly, the Company's estimate of fair value is subjective.  
Prepayments are expressed through a market convention known as an annual 
constant prepayment rate ("CPR").  In its past securitizations, the Company 
has experienced a CPR on the securitized loans ranging from 9.6% to 48.4%.  
Non-conventional mortgage loans, and the Company's loans, historically 
prepay at a faster rate than conventional mortgage loans.  At origination, 
the Company utilized prepayment assumptions ranging from 25.0% to 40.0%, 
estimated loss factor assumptions of 0.5% and weighted average discount 
rates of 18.0%, 18.0% and 23.6% for the years ended December 31, 1996, 1995, 
and 1994, respectively, to value residual interests.  Based upon the 
historical performance of its loans, the Company expects its securitized 
pools to have average lives of three to five years.  As of December 31, 
1996, the Company's investments in residual interests totaled $29.3 million. 

     To determine the fair value of mortgage servicing rights, the Company 
computes the present value of projected net cash flows expected to be 
received over the life of the loans.  Such projections incorporate 
assumptions, including servicing costs, prepayment rates and discount rates, 
consistent with those an unrelated third party would utilize to value such 
mortgage servicing rights.  These assumptions are similar to those used by 
the Company to value residual interests.  The Company periodically evaluates 
capitalized mortgage servicing rights for impairment, which is measured as 
the excess of unamortized cost over fair value.  This review is performed on 
a disaggregated basis based on loan type.  The Company, which generally 
makes loans to credit impaired borrowers, has found that credit impaired 
borrowers are payment sensitive rather than interest rate sensitive.  
Therefore, the Company does not consider interest rates a predominant risk 
characteristic for purposes of evaluating impairment.  As of December 31, 
1996, mortgage servicing rights totaled $6.0 million.   

     The three primary components of the Company's revenue are loan 
origination and sale, loan servicing and other fees and interest income.  

     Loan origination and sale revenue consists of gain on sale of loans and 
the recognition of net deferred origination fees.  A significant portion of 
loan origination and sale revenue is the recognition upon sale of net 
deferred origination fees, which equaled $36.9 million, or 77% of loan 
origination and sale revenue during 1996. 

     Loan servicing and other fee income represents management servicing 
fees and other ancillary fees received for servicing loans.  Mortgage 
servicing rights are amortized against loan servicing and other fee revenue 
over the period of estimated net future servicing fee income.  

     Interest income is comprised of two primary components: (i) interest on 
loans held for sale during the warehousing period and (ii) the effective 
yield on residual interests.  The Company recognizes interest income from 
residual interests on a level yield basis over the expected lives of the 
securitized loans.  At the end of each quarter, the Company computes an 
effective yield based on each residual interest's then-current estimate of 
future cash flows.  This effective yield is used to accrue interest income 
in the subsequent quarter. 

                                      17

<PAGE>

Loan Origination and Purchases
                                      For the Year Ended December 31,
                                      --------------------------------
                                         1996        1995        1994
                                      ----------  ----------  ----------
                                           (Dollars in thousands)
Loan originations and purchases: 								
  Retail branch originations.......   $ 274,813   $ 200,371   $ 151,338	
  Portfolio refinancing 
    originations (1)...............      16,994      16,195      70,501	
  Wholesale purchases..............      32,681      24,078      91,826	
                                      ----------  ----------  ----------
     Total originations and 
        purchases..................   $ 324,488   $ 240,644   $ 313,665	
                                      ==========  ==========  ==========
Number of retail branches as of 
 the end of the period: 							
  United States:								
    California.....................           7           7          11	
    Other States...................          15          10           2	
  United Kingdom...................           1 
                                      ----------  ----------  ----------
      Total........................          23          17          13	
                                      ==========  ==========  ==========
								
Weighted average initial interest rate     9.6%       10.3%        8.7%
Weighted average initial combined 
 loan-to-value ratio:						
  Retail branch and portfolio 
    refinancing originations.......       61.7%       58.6%       54.4%
  Wholesale purchases..............       67.3%       66.5%       60.5%
Average retail branch origination 
  loan size........................   $     82   $      69   $      66	
Weighted average loan origination 
  and processing fees as a percent 
  of gross loans originated: 								
  Retail branch originations.......       14.8%       15.3%       15.6%
  Portfolio refinancing originations (1)   5.0%       13.0%        7.5%
  Combined.........................       14.2%       15.1%       13.0%

     (1) Portfolio refinancing originations consist primarily of loans 
originated by the Company's centralized marketing and sales efforts.  Such 
efforts focus on preserving the Company's existing portfolio through 
refinancing loans to borrowers who have inquired about prepaying their 
existing loans.  Loan origination fees on portfolio refinancing originations 
are less than fees for retail branch originations as customary fees are 
waived or reduced as an incentive to refinance with the Company. 

     Originations and purchases increased 35% in 1996 to $324 million from 
$241 million in 1995, which in turn was a decrease of  23% from $314 million 
in 1994.  Retail branch originations increased 37% and 32% in 1996 and 1995, 
respectively, as compared to the corresponding prior year amounts.  The 
increase in retail branch originations is primarily the result of new retail 
branch offices opened in 1996 and 1995.  The decrease in originations and 
purchases in 1995 was due to decreases in portfolio refinancing 
originations, resulting from changes in the Company's portfolio refinancing 
programs, and decreases in wholesale purchases, resulting from the 
curtailment of certain loan purchase programs.

                                      18

<PAGE>

Loan Sales 
                                      For the Year Ended December 31,
                                      --------------------------------
                                         1996        1995        1994
                                      ----------  ----------  ----------
                                           (Dollars in thousands)
Securitizations....................   $ 267,661   $ 167,974   $ 350,331	
Whole loan sales...................      71,864      65,251      22,857	
                                      ----------  ----------  ----------
   Total...........................   $ 339,525   $ 233,225   $ 373,188	
                                      ==========  ==========  ==========

     Loan sales, including securitizations of loans, increased 46% in 1996 
to $340 million from $233 million in 1995, which had decreased 38% from $373 
million in 1994.  The increase in 1996 is due primarily to the increase in 
retail branch originations in 1996.  The decrease in 1995 was primarily due 
to decreased portfolio refinancing originations and wholesale loan purchases 
in 1995 as well as the timing of loan sales in 1994 and 1993, offset by the 
increase in retail branch originations. 

Composition of Revenue and Expense

     The following table summarizes certain components of the Company's 
consolidated statements of income set forth as a percentage of total revenue 
for the years ended December 31:

                                             1996         1995        1994
                                          ----------  ----------  ----------
REVENUE:											
  Loan origination and sale: 											
    Gain (loss) on sale of loans.......       15.5 %      15.3 %      (3.4)%
    Net loan origination and other fees       52.5        45.0        64.3
  Loan servicing and other fees........       12.5        14.6        19.9 
  Interest.............................       19.1        24.8        18.9
  Other................................        0.4         0.3         0.3
                                          ----------  ----------  ----------
      Total revenue....................      100.0       100.0       100.0
                                          ==========  ==========  ==========
EXPENSE: 											
  Compensation and benefits............       21.9        17.7        20.9
  Professional services................        1.8         1.3         3.3
  Advertising..........................        5.9         7.4         7.2
  Subservicing and other fees..........        1.0         2.1         2.2
  Rent.................................        2.2         2.2         2.1
  Supplies.............................        2.2         2.1         1.8
  Depreciation and amortization........        1.2         1.5         1.1
  Interest.............................        3.7         7.1         8.2
  Legal................................        1.3         2.5        15.6
  Travel, relocation and training......        1.6         1.3         0.8	
  Other................................        3.2         2.1         3.5
                                          ----------  ----------  ----------
      Total expense....................       46.0        47.3        66.7	
                                          ----------  ----------  ----------
Income before income tax provision.....       54.0        52.7        33.3
Income tax provision...................        8.7         0.8         0.8
                                          ----------  ----------  ----------
Net income.............................       45.3 %      51.9 %      32.5 %
                                          ==========  ==========  ==========

                                      19

<PAGE>

Results of Operations for the Three Years Ended December 31, 1996

Revenue

     The following table sets forth the components of the Company's revenue 
for the years ended December 31:

                                            1996        1995        1994
                                         ----------  ----------  ----------
                                              (Dollars in thousands)
Loan origination and sale: 								
  Gain (loss) on sale of loans (1).....  $  10,965   $   8,982   $  (1,547)
  Net loan origination and other fees..     37,206      26,484      29,449
Loan servicing and other fees..........      8,854       8,614       9,106
Interest...............................     13,562      14,624       8,650
Other..................................        284         176         144
                                         ----------  ----------  ----------
    Total revenue......................  $  70,871   $  58,880   $  45,802	
                                         ==========  ==========  ==========

(1) Excluding net loan origination and other fees 
	
     The increases in total revenues in 1996 and 1995 of 20% and 29%, 
respectively, from the prior year amounts were primarily due to increased 
loan origination and sale revenue and, in 1995, increased interest income 
from residual interests.

     Loan origination and sale revenue increased 36% in 1996 to $48.2 
million from $35.5 million in 1995, which increased 27% from $27.9 million 
in 1994.

     The 22% increase in gain (loss) on sale of loans in 1996 as compared to 
1995 was due to the increased volume of loans sold offset by lower premiums 
realized on loan sales.  The weighted average gain on sales of loans as a 
percentage of loan principal balances decreased to 3.2% in 1996 from 3.9% in 
1995.  This decrease was primarily due to decreased weighted average initial 
gross spreads (the difference between the initial weighted average interest 
rates for the loans included in the securitizations and the initial weighted 
average pass-through interest rates paid to holders of the regular interests 
in the securitizations) in residual interests originated in securitizations 
which decreased to 2.9% in 1996 from 3.8% in 1995.  Gross  spreads decreased 
due to increasing interest rates during the first half of 1996 as compared 
to decreasing interest rates during the first nine months of 1995.  These 
decreased gross spreads were offset by the results of the Company's hedging 
activities which had realized gains of $0.4 million in 1996 as compared to 
realized losses of $0.3 million in 1995.  Since April 1996, the Company has 
continuously hedged fixed rate loans held for sale and commitments to fund 
fixed rate loans. 

     Gain (loss) on sales of loans increased to a gain of $9.0 million in 
1995 from a loss of $1.5 million in 1994.  This increase was due primarily 
to increased premiums on loan sales.  The weighted average gain (loss) on 
sales of loans as a percentage of loan principal balances increased to a 
weighted average gain on sale of loans of 3.9% in 1995 from a weighted 
average loss on sale of loans in 1994 of 0.4%.  Such increase was primarily 
the combined result of (i) gross spreads in residual interests originated in 
securitizations which increased to 3.8% in 1995 from 2.4% in 1994 primarily 
as a result of decreasing interest rates during 1995 as compared to 
increasing interest rates during 1994; (ii) decreased levels of required 
initial overcollateralization, which decreased from $2.8 million, or .81% of 
the related regular interests balances, in 1994 to $0.1 million, or .04% of 
the related regular interests balances, in 1995; and (iii) recognition of 
$3.9 million of capitalized mortgage servicing rights originated during 1995 
due to the adoption of SFAS No. 122 in 1995 (accordingly no such assets were 
recognized in 1994). These increases were offset by the results of the 
Company's hedging activities which had realized losses of $0.3 million in 
1995 as compared to realized gains of $0.8 million in 1994.

     Net loan origination and other fees increased 40% to $37.2 million in 
1996 from $26.5 million in 1995 due primarily to increased loan  sales.  The 
10% decrease in net loan origination and other fees in 1995 from $29.4 
million in 1994 was primarily due to a corresponding decrease in sales of 
loans originated by the Company's retail branch offices.

                                      20

<PAGE>

     Loan servicing and other fees as a percentage of the average servicing 
portfolio were 1.4%, 1.5% and 1.9% in 1996, 1995 and 1994, respectively.  
The decrease in 1995 as compared to 1994 was due primarily to a decrease in 
the weighted average servicing rate earned on the Company's servicing 
portfolio which decreased to 0.8% in 1995 from 1.1% in 1994 as a result of a 
decrease in the proportion of private investor loans to total loans 
serviced.  The Company earns higher servicing rates on loans sold to private 
investors than on loans securitized.  Loans sold to private investors as a 
percentage of the average servicing portfolio decreased to 13% in 1995 from 
25% in 1994, resulting in a decrease in the weighted average servicing rate.

     Interest income decreased $1.0 million, or 7%, in 1996 as compared to 
1995. Interest income from loans held for sale and loans receivable held for 
investment decreased $3.8 million due primarily to a decrease in the average 
balance of loans outstanding.  This was the result of a decrease in the 
average holding period of loans held for sale as the Company completed 
securitizations in each quarter of 1996, as compared to two securitizations 
in 1995, and the paydown of loans receivable held for investment.  Interest 
income from residual interests increased $2.5 million due primarily to an 
increase in the average balance of residual interests, which increased to 
$23.3 million in 1996 from $15.2 million in 1995.

     Interest income increased $6.0 million, or 69%, in 1995 as compared to 
1994.  Interest income from residual interests increased $4.0 million due to 
the combined effect of an increase in the average balance of  residual 
interests, which increased to $15.2 million in 1995 from $10.3 million in 
1994, and an increase in the weighted average effective yield on residual 
interests.  The increase in the weighted average effective yield in residual 
interests is due primarily to the favorable performance of the residual 
interests originated in 1994 as compared to assumptions used in computing 
their fair value at origination.  Interest income from loans held for sale 
increased $0.9 million in 1995 due to an increase in the weighted average 
interest rate on loans originated and purchased which increased to 
approximately 10.3% in 1995 from 8.7% in 1994. Interest on loans receivable 
held for investment increased $1.0 million in 1995 due to an increase in the 
average balance of loans receivable held for investment.

Expense

     The following table sets forth the components of the Company's expenses 
for the years ended December 31:

                                            1996        1995        1994
                                         ----------  ----------  ----------
                                              (Dollars in thousands)
Compensation and benefits..............  $  15,488   $  10,416   $   9,559
Professional services..................      1,263         787       1,521
Advertising............................      4,191       4,345       3,316
Subservicing and other fees............        683       1,212       1,019	
Rent...................................      1,530       1,278         974	
Supplies...............................      1,575       1,214         831	
Depreciation and amortization..........        838         907         514	
Interest...............................      2,655       4,167       3,744	
Legal..................................        917       1,491       7,162	
Travel, relocation and training........      1,103         788         351	
Other..................................      2,389       1,255       1,577	
                                         ----------  ----------  ----------
Total expense..........................  $  32,632   $  27,860   $  30,568	
                                         ==========  ==========  ==========

     Total expenses increased $4.8 million, or 17%, in 1996 as compared to 
1995 due primarily to increases in compensation and benefits.  Total 
expenses decreased $2.7 million to $27.9 million in 1995 from $30.6 million 
in 1994 due primarily to decreases in legal and professional services offset 
by increases in compensation and benefits and advertising. 

     The increases in compensation and benefits in 1996 and 1995 of $5.1 
million and $0.9 million, respectively, were due primarily to increases in 
personnel to support the Company's retail branch office expansion.  In 
addition, in 1996, the Company reduced the use of outside telemarketing 
services and increased the number of employees in its internal telemarketing 
operations. 

                                      21

<PAGE>

     The increase in professional services of $0.5 million in 1996 as 
compared to 1995 was due primarily to increased costs related to the 
recruitment of employees to support the Company's retail branch office 
expansion.  As a result of the discontinuation of portfolio refinancing 
origination programs utilizing the services of outside consultants, 
professional services decreased $0.8 million in 1995 as compared to 1994.

     Advertising expense as a percentage of retail branch originations was 
1.5% in 1996 and 2.2% in 1995 and 1994.  The decrease in 1996 as compared to 
1995 is due primarily to the reduction in the use of outside telemarketing 
services and the increase in the number of employees in the Company's 
internal telemarketing operations.

     Sub-servicing and other fees decreased 44%, or $0.5 million, in 1996 as 
compared to 1995 because the servicing of adjustable rate loans, previously 
sub-serviced by a third party, was transferred to the Company after the 
Company had installed a new loan servicing software system which enabled it 
to service such loans.

     Combined, rent and supplies increased 25% in 1996 as compared to 1995, 
and 38% in 1995 as compared to 1994, primarily as a result of the opening of 
new retail branch offices in 1996 and 1995.  The number of retail branch 
offices increased from 13 at December 31, 1994 to 17 at December 31, 1995 to 
23 at December 31, 1996.

     Depreciation and amortization increased $0.4 million in 1995 as 
compared to 1994.  This increase is primarily related to the write off of 
$0.2 million in 1995 of the remaining book value of the Company's loan 
servicing system due to implementation of a new system.

     Interest expense decreased $1.5 million in 1996 as compared to 1995 due 
primarily to a decrease in interest expense on the warehouse financing 
facilities of $1.8 million offset by an increase of $0.4 million in interest 
expense paid to stockholders related to stockholder notes payable and S 
distribution notes.  Due to the increased frequency of securitizations in 
1996 as compared to 1995, the average outstanding balance of the warehouse 
financing facilities decreased 42% resulting in a decrease in the related 
interest expense.  The increase in interest expense associated with 
stockholder notes payable and S distribution notes was due primarily to an 
increase in the average balance outstanding during 1996 which was due to the  
distribution, in anticipation of the Offering, of the S distribution notes 
in 1996.

     Interest expense increased $0.4 million in 1995 as compared to 1994 due 
primarily to increases in interest expense on the warehouse financing 
facilities of $0.3 million and interest expense related to stockholder notes 
payable of $0.2 million.  Increased interest expense associated with the 
warehouse financing facilities was due to an increase in the weighted 
average interest rate, which increased to 7.10% in 1995 from 5.96% in 1994.  
Increased interest expense associated with stockholder notes payable was due 
to an increase in the average balance outstanding during 1995.

     Legal expense decreased $0.6 million in 1996 as compared to 1995, and 
$5.7 million in 1995 as compared to 1994.  The decrease in legal costs in 
1996 was primarily due to a $0.8 million decrease in legal settlement costs.  
During 1994, the Company recorded legal expenses and estimated settlement 
costs of $7.0 million related to a class action suit filed in December of 
1989 in which the Company was named as the defendant.  Additionally, during 
1994, the Company incurred approximately $0.4 million in legal fees as the 
plaintiff in litigation for which the Company received a $1.3 million 
judgment in its favor.

     Travel, relocation and training increased $0.3 million and $0.4 million 
in 1996 and 1995, respectively, due primarily to expenses incurred related 
to the Company's retail branch office expansion.

     Other expenses increased $1.1 million to $2.4 million in 1996 as 
compared to $1.3 million in 1995, which had decreased from $1.6 million in 
1994.  The increase in 1996 and decrease in 1995 was due primarily to losses 
and gains realized on real estate owned ("REO").  In 1996, losses on REO 
amounted to $0.2 million as compared to gains of $0.5 million in 1995 and 
$0.2 million in 1994.  The losses in 1996 reflects the Company's decision to 
aggressively reduce the balance of its REO portfolio which decreased to $0.3 
million at December 31, 1996 from $1.5 million at December 31, 1995.

                                      22

<PAGE>

Income Taxes

     From May 1, 1988 until the close of the Offering, the Company had 
elected to be treated for Federal income and certain state tax purposes as 
an S corporation under Subchapter S of the Internal Revenue Code and 
comparable state laws.  As a result, the Company's provisions for income 
taxes during that period reflected modest corporate level state income taxes 
for those states in which the Company operates.  The taxable income of the 
Company during such periods has been included in the individual taxable 
income of its stockholders for Federal and state income tax purposes.

     Effective upon the closing of the Offering in July 1996, the Company's 
S corporation status was terminated and the Company became subject to full 
corporate Federal and state income taxes.  In conjunction with the 
termination of the Company's S corporation status, the Company recorded $3.1 
million of net deferred tax assets related to temporary differences between 
financial reporting and tax basis of assets and liabilities measured by 
applying enacted tax rates and law to taxable years in which such temporary 
differences are expected to be recovered or settled.  Subsequent to the 
Offering, the Company's effective income tax rate is anticipated to 
approximate the Federal and composite state income tax rates (net of Federal 
benefit).  If the Company had been fully subject to Federal and state income 
taxes, net income on a pro forma basis would have been $22.6 million, $18.3 
million and $9.0 million in 1996, 1995 and 1994, respectively.

Servicing 

     At December 31, 1996, total delinquent loans were 5.5% of the Company's 
servicing portfolio as compared to 5.8% at December 31, 1995 and 4.3% at 
December 31, 1994.  Loan losses as a percentage of the average servicing 
portfolio were 0.35%, 0.03% and 0.01% in 1996, 1995 and 1994, respectively.  
The increases in loan losses in 1996 were principally due to the disposition 
of properties acquired through foreclosures of wholesale loans purchased in 
1993 and 1994 from certain originators from whom the Company no longer 
purchases loans.   

     The following tables provide data on loan delinquency, REO and net 
losses for the Company's servicing portfolio:

<TABLE>
<CAPTION>

                                                      As of December 31,
                              ---------------------------------------------------------------------
                                       1996                    1995                    1994
                              ----------------------  ---------------------  ----------------------
                                            % of                     % of                   % of 
                             (Dollars in  Servicing  (Dollars in   Servicing (Dollars in  Servicing
                              thousands)  Portfolio   thousands)   Portfolio  thousands)  Portfolio
                              ----------  ----------  ----------  ----------  ----------  ----------
<S>                           <C>         <C>         <C>         <C>         <C>         <C>
Servicing Portfolio........   $ 641,191               $ 613,791               $ 555,685
                              ==========              ==========              ==========
30-59 days delinquent......   $   9,359        1.5%   $   8,339        1.4%   $   6,084        1.1%
60-89 days delinquent......       6,704        1.0        6,538        1.0        4,471        0.8
90 days or more delinquent.      19,081        3.0       21,002        3.4       13,589        2.4	
                              ----------  ----------  ----------  ----------  ----------  ----------
    Total delinquencies....   $  35,144        5.5%   $  35,879        5.8%   $  24,144        4.3%
                              ==========  ==========  ==========  ==========  ==========  ==========
REO (1)....................   $   3,951        0.6%   $   7,854        1.3%   $   3,386        0.6%
                              ==========  ==========  ==========  ==========  ==========  ==========


</TABLE>
                                           For the Year Ended December 31, 
                                         ----------------------------------
                                            1996        1995        1994
                                         ----------  ----------  ----------
                                              (Dollars in thousands)

Average servicing portfolio (2)........  $ 615,393   $ 583,943   $ 470,628	
Net losses (3).........................      2,160         169          44	
Percentage of average servicing 
  portfolio............................      0.35%       0.03%       0.01%

(1) Includes REO of the Company as well as REO of the REMIC trusts serviced 
by the Company;  however, excludes 	private investor REO not serviced by 
the Company.
(2) Average servicing portfolio balance equals the quarterly average of the 
servicing portfolio computed as the average of the	balance at the beginning 
and end of each quarter.
(3) Net losses represent losses realized with respect to disposition of REO.


                                      23

<PAGE>

Liquidity And Capital Resources 

     During the third quarter of  1996, the Company completed the Offering 
whereby 4,025,000 shares of Class A Common Stock were sold resulting in 
gross proceeds of $68.4 million.  After deducting underwriting discounts and 
offering costs, the net proceeds of $63.1 million were used to pay $45.0 
million of S distribution notes, to pay down $12.9 million of the Company's 
warehouse financing facilities and to fund current operations.

     Historically, the Company has generated positive cash flow.  The 
Company's sources of cash include loan sales, sales of regular interests, 
borrowings under its warehouse financing facilities, distributions received 
from residual interests, interest income and loan servicing income.  The 
Company's uses of cash include the funding of loan originations and 
purchases, payments of interest, repayment of its warehouse financing 
facilities, funding of any initial overcollateralization deposit 
requirements for securitizations, capital expenditures, operating and 
administrative expenses and payment of income taxes.  At origination of a 
loan, the Company includes the loan origination fees in the principal 
balance, and, if not utilizing available cash, borrows the approximate 
principal balance of the loan under its warehousing financing facilities.  
As the amount funded to the borrower is net of the loan origination fees, 
the Company generates cash approximating the loan origination fees at the 
time of funding of the loan under the warehouse financing facilities.  Total 
cash generated from the sales of loans and regular interests in securities 
is then used to pay down the warehouse financing facilities.  Cash provided 
by operating activities plus net (repayments) borrowings on the warehouse 
financing facilities was $20.2 million in 1996 as compared to $10.8 million 
in 1995 and $19.0 million in 1994. 

     In securitizations, the portion of the gain recorded by the Company 
representing the recorded value of residual interests is a non-cash gain on 
which the Company is required to pay income tax.  These income taxes payable 
and the expenses associated with a securitization have a negative impact on 
the Company's cash flow. 

     The Company's ability to continue to originate and purchase loans is 
dependent upon adequate credit facilities and upon its ability to sell the 
loans in the secondary market in order to generate cash proceeds for new 
originations and purchases.  The value of and market for the Company's loans 
are dependent upon a number of factors, including general economic 
conditions, interest rates and governmental regulations.  Adverse changes in 
such factors may affect the Company's ability to sell loans for acceptable 
prices within a reasonable period of time.  A prolonged, substantial 
reduction in the size of the secondary market for loans of the type 
originated or purchased by the Company may adversely affect the Company's 
ability to sell loans in the secondary market with a consequent adverse 
impact on the Company's results of operations, financial condition and 
ability to fund future originations and purchases.

    The Company's $125 million warehouse financing facility, which is 
secured by loans originated or purchased by the Company and currently bears 
interest at a rate of 0.80% over 30 day London Interbank Offered Rate 
("LIBOR"), expires on March 31, 1997.  The Company's $25 million warehouse 
financing facility, which is secured by loans originated or purchased by the 
Company and currently bears interest at a rate of 0.80% over 30 or 90 day 
LIBOR, expires on March 3, 1998.  Management expects, although there can be 
no assurance, that the Company will be able to maintain these warehouse 
financing facilities (or obtain replacement or additional financing) in the 
future.
	
     In February 1997 the Company entered into agreements to provide 
warehouse financing facilities to two mortgage banking companies 
("Borrowers") that were controlled by family members of the Company's 
principal stockholder.  These lines of credit are secured by loans 
originated by the Borrowers and by personal guarantees provided by 
stockholders of the  Borrowers, bear interest at 10%, have a combined 
borrowing limit of $15 million and expire on July 31, 1998.
 	
     As of December 31, 1996, the Company had commitments to fund loans of 
$7.5 million.  Historically, approximately 55% of such commitments have 
ultimately been funded.  Capital expenditures totaled $2.3 million, $1.0 
million and $0.9 million in 1996, 1995, and 1994, respectively.  The 
increase in capital expenditures in 1996 relates primarily to the 
acquisition of a new loan servicing system and the Company's move to new 
administration offices.

     The Company paid dividends, including amounts to be used by the 
stockholders for the payment of personal income tax on the earnings of the S 
corporation, of $15.1 million, $12.2 million and $17.3 million in 1996, 1995 
and 1994, respectively.  In addition, in 1996, in anticipation of the 
termination of the Company's S corporation status at the time of the 
Offering, the Company distributed S distribution notes to the stockholders 
of the Company totaling $45.0 million.  Proceeds from the Offering were used 
to pay the S distributions notes in 1996.  No dividends have been declared 
since the Company completed the Offering. 

                                      24

<PAGE>

     The Company believes that cash flows from operations, net proceeds from 
securitizations and whole loan sales and the availability of funds under the 
warehouse financing facilities will be sufficient to fund operating needs 
and capital expenditures for the ensuing 12 months. 

Effects Of Recent Accounting Pronouncements 

     In 1996, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation"("SFAS 123"), which encourages companies to account for 
stock compensation awards based on their fair value at the date the awards 
are granted.  SFAS 123 does not require the application of the fair value 
method for stock compensation granted to employees and allows for 
continuance of current accounting practice, which requires accounting for 
stock compensation awards based on their intrinsic value as of the date of 
grant.  However, SFAS 123 requires pro forma disclosure of net income and 
net income per share, as if the fair value based method of accounting 
defined in SFAS 123 had been applied.  In 1996, the Company adopted all the 
provisions of SFAS 123 except for the fair value provisions for transactions 
with employees.  

     In 1996, FASB issued Statement of Financial Accounting Standards No. 
125 "Accounting for Transfers and Servicing of Financial Assets and 
Extinguishment of Liabilities" which becomes effective for transactions 
occurring after December 31, 1996.  The adoption of this standard is not 
expected to have a material effect on the Company's financial condition or 
results of operations.

Item 8.  Financial Statements and Supplementary Data. 

     See Consolidated Financial Statements beginning on Page F-1 of this 
Annual Report on Form 10-K.

Item 9.  Changes in and Disagreements With Accountants on Accounting and 
Financial Disclosure. 

     None.  

                                      25

<PAGE>

                                  PART III

Item 10.  Directors and Executive Officers of the Registrant.

     The information required by this Item is set forth under the caption 
"Management" in the Company's definitive Proxy Statement (the "Proxy 
Statement"), which will be filed with the Securities and Exchange Commission 
pursuant to Regulation 14A under the Securities and Exchange Act of 1934 and 
is incorporated herein by reference.

Item 11.  Executive Compensation.

     The information required by this Item is set forth under the caption 
"Executive Compensation" in the Proxy Statement, which will be filed with 
the Securities and Exchange Commission pursuant to Regulation 14A under the 
Securities Act of 1934 and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management. 

     The information required by this Item is set forth under the caption 
"Security Ownership of Certain Beneficial Owners and Management" in the 
Proxy Statement, which will be filed with the Securities and Exchange 
Commission pursuant to Regulation 14A under the Securities Exchange Act of 
1934 and is incorporated herein by reference. 

Item 13.  Certain Relationships and Related Transactions. 
  
     The information required by this Item is set forth under the caption 
"Certain Relationships and Related Transactions" in the Proxy Statement, 
which will be filed with the Securities and Exchange Commission pursuant to 
Regulation 14A under the Securities and Exchange Act of 1934 and is 
incorporated herein by reference.
 

                                      26

<PAGE>

                                  PART IV 


Item 14.  Exhibits and Financial Statement Schedules, Reports on Form 8-K
	
     (a)  1.  Financial Statements: 		
                 Consolidated Statements of Financial Condition:  
                    December 31, 1996 and 1995                           F-1
                 Consolidated Statements of Income: 
                    For each of the three years in the period 
                    ended December 31, 1996                              F-2
                Consolidated Statements of Stockholders' Equity:
                    For each of the three years in the period 
                    ended December 31, 1996.                             F-3
                Consolidated Statements of Cash Flows: 
                    For each of the three years in the period
                    ended December 31, 1996.                             F-4
                Notes to Consolidated Financial Statements: 
                    For each of the three years in the period 
                    ended December 31, 1996.                             F-6
                Independent Accountants' Report                          F-18 
          2.  Financial Statement Schedules:  
                 None Required.			
          3.  Exhibits 		

Exhibit 									   		
  No.                           Description of Exhibit
  ---                           ----------------------	
			
3.1    Certificate of Incorporation of the Company (Incorporated by 
       reference to Exhibit 3.1 to the Company's Registration Statement on Form 
       S-1, Commission File No. 333-3633)
3.2    Bylaws of the Company  (Incorporated by reference to Exhibit 3.2 to 
       the Company's Registration Statement on Form S-1, Commission File No. 
       333-3633)
4.1    1996 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 
       to the Company's Registration Statement on Form S-1, Commission File 
       No. 333-3633)
4.1.1  Form of Incentive Stock Option Agreement for use with 1996 Stock 
       Incentive Plan *
4.1.2  Form of Non-qualified Stock Option Agreement for use with 1996 Stock 
       Incentive Plan*
10.1   Warehouse Financing Facility dated October 29, 1993  (Incorporated 
       by reference to Exhibit 10.1 to the Company's Registration Statement 
       on Form S-1, Commission File No. 333-3633)
10.2   Form of Pooling and Servicing Agreement  (Incorporated by reference 
       to Exhibit 10.2 to the Company's Registration Statement on Form S-1, 
       Commission File No. 333-3633)
10.3   Corporate Headquarters Lease (Incorporated by reference to Exhibit 
       10.3 to the Company's Registration Statement on Form S-1, Commission 
       File No. 333-3633)
10.4   S Distribution Notes  (Incorporated by reference to Exhibit 10.4 to 
       the Company's Registration Statement on Form S-1, Commission File No. 
       333-3633)
10.5   Mason Employment Agreement  (Incorporated by reference to Exhibit 
       10.5 to the Company's Registration Statement on Form S-1, Commission 
       File No. 333-3633)
10.5.1 Mason Loan*
10.6   Form of Directors' and Officers' Indemnity Agreement  (Incorporated 
       by reference to Exhibit 10.7 to the Company's Registration Statement 
       on Form S-1, Commission File No. 333-3633)
10.7   Mortgage Loan Master Transfer Agreement dated as of June 30, 1995 
       between Nationscapital Mortgage Corporation and the Company 
       (Incorporated by reference to Exhibit 10.8 to the Company's 
       Registration Statement on Form S-1, Commission File No. 333-3633)  
10.8   Mortgage Loan Master Transfer Agreement dated as of June 30, 1995 
       between Coast Security Mortgage Inc. and the Company  (Incorporated by 
       reference to Exhibit 10.9 to the Company's Registration Statement on 
       Form S-1, Commission File No. 333-3633)

<PAGE>

Exhibit 									   		      
  No.                           Description of Exhibit
  ---                           ----------------------

	
10.9   Chisick Employment Agreement  (Incorporated by reference to Exhibit 
       10.10 to the Company's Registration Statement on Form S-1, Commission 
       File No. 333-3633)
10.10  Reimbursement Agreement  (Incorporated by reference to Exhibit 
       10.11 to the Company's Registration Statement on Form S-1, Commission 
       File No. 333-3633)
10.11  Warehouse Financing Facility dated September 5, 1996 (Incorporated 
       by reference to Exhibit 10.12 to the Company's Quarterly Report on 
       Form 10-Q for the period ended September 30, 1996, Commission File 
       No. 0-28706)
11.1   Statement re: computation of  net income per share for each of the 
       three years in the period ended December 31, 1996*
21     Subsidiaries of the Registrant*
27     Financial Data Schedule*
--------------------
* Filed herewith. 

     (b)   Reports on Form 8-K
            None

<PAGE>

                                 SIGNATURES 

   Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be 
signed on its behalf by the undersigned, thereunto duly authorized.

Date:  March 20, 1997

                                     FIRST ALLIANCE CORPORATION

                                     By:/S/ BRIAN CHISICK
                                        ------------------------
                                            Brian Chisick
                                            President and 
                                      Chief Executive Officer

  Pursuant to the requirements of the Securities and Exchange Act of 1934, 
this report has been signed below by the following persons on behalf of the 
registrant and in the capacities and on date indicated. 

    Signature                        Title                           Date
    ---------                        -----                           ----
				
/S/_BRIAN CHISICK___   President and Chief Executive Officer,   March 20, 1997
  Brian Chisick        Director, Principal Executive Officer 		
				
				
/S/_MARK MASON______   Executive Vice President and             March 20, 1997
   Mark Mason          Chief Financial Officer, Director, 
                       Principal Accounting Officer		
				
				
/S/_JEFFREY_W._SMITH_  Executive Vice President and             March 20, 1997
   Jeffrey W. Smith    Chief Operating Officer, Director		

				
/S/_SARAH_CHISICK____  Vice President, Director                 March 20, 1997
  Sarah Chisick				
				
				
/S/_MERRILL_BUTLER___  Director                                 March 20, 1997
  Merrill Butler 				
				
				
/S/_GEORGE_GIBBS,_JR.  Director                                 March 20, 1997
  George Gibbs, Jr. 				
				
				
/S/_ALBERT_L._LORD___  Director                                 March 20, 1997
  Albert L. Lord				


<PAGE>

                         FIRST ALLIANCE CORPORATION 

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 


Consolidated Statements of Financial Condition 		
     As of December 31, 1996 and 1995                                   F-1
		
Consolidated Statements of Income 		
     For each of the three years in the period ended December 31, 1996  F-2
		
Consolidated Statements of Stockholder's Equity 		
     For each of the three years in the period ended December 31, 1996  F-3
		
Consolidated Statements of Cash Flows		
     For each of the three years in the period ended December 31, 1996  F-4
		
Notes to Consolidated Financial Statements 		
     For each of the three years in the period ended December 31, 1996  F-6
		
Independent Accountants' Report                                         F-18


<PAGE>

                          FIRST ALLIANCE CORPORATION 

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                            (Dollars in thousands)


                                                          December 31, 
                                                     -----------------------
                                                       1996          1995
                                                     ----------   ----------
                      ASSETS
Cash and cash equivalents........................    $  27,414    $   4,019
Receivable from trusts...........................        2,671        4,664
Loans held for sale..............................       11,023       24,744
Loans receivable held for investment.............        2,432        2,261
Residual interests in securities at fair value...       29,253       19,705
Mortgage servicing rights........................        6,025        4,021
Real estate owned, net...........................          312        1,474
Property, net....................................        3,098        2,141
Deferred taxes...................................        3,101           73
Prepaid expenses and other assets................        2,128        3,809
                                                    ----------    ----------
  Total assets...................................    $  87,457    $  66,911
                                                     ==========   ==========
				
       LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:					
Warehouse financing facilities...................    $            $  18,233
Accounts payable and accrued liabilities.........        3,952        5,234
Income taxes payable.............................        5,396
Notes payable....................................          131        1,123
                                                     ----------   ----------
  Total liabilities..............................        9,479       24,590
                                                     ----------   ----------
Commitments and contingencies					                                          
					                                                                       
Stockholders' equity: 					                                                  
Preferred Stock $.01 par value: 1,000,000 shares                             
   authorized; no shares outstanding                                        
Class A Common Stock, $.01 par value; 25,000,000                             
   shares authorized; shares issued and outstanding:                          
   4,025,000 at December 31, 1996, no shares at                              
   December 31,1995..............................          40              
Class B Common Stock, $.01 par value; 15,000,000                             
   shares authorized; shares issued and outstanding:                        
   10,750,000 at December 31, 1996, 10,642,500 at                            
   December 31, 1995.............................          108           42
Additional paid in capital.......................       64,643
Retained earnings................................       14,338       42,279
Deferred stock compensation......................       (1,113)
Foreign currency translation.....................          (38)
                                                     ----------   ----------
  Total stockholders' equity.....................       77,978       42,321
                                                     ----------   ----------
Total liabilities and stockholders' equity.......    $  87,457    $  66,911
                                                     ==========   ==========



               See notes to consolidated financial statements.

                                     F-1

<PAGE>

                          FIRST ALLIANCE CORPORATION 

                        CONSOLIDATED STATEMENTS OF INCOME

                   (Dollars in thousands except per share amounts)


                                                 Year ended December 31,
                                        ------------------------------------
                                            1996        1995          1994
                                        ----------   ----------   ----------
								
REVENUE:	 							
  Loan origination and sale..........   $  48,171    $  35,466    $  27,902
  Loan servicing and other fees......       8,854        8,614        9,106
  Interest...........................      13,562       14,624        8,650
  Other..............................         284          176          144
                                        ----------   ----------   ----------
    Total revenue....................      70,871       58,880       45,802
                                        ----------   ----------   ----------
EXPENSE:								
  Compensation and benefits..........      15,488       10,416        9,559
  Professional services..............       1,263          787        1,521
  Advertising........................       4,191        4,345        3,316
  Subservicing and other fees........         683        1,212        1,019
  Rent...............................       1,530        1,278          974
  Supplies...........................       1,575        1,214          831
  Depreciation and amortization......         838          907          514
  Interest...........................       2,655        4,167        3,744
  Legal..............................         917        1,491        7,162
  Travel, relocation and training....       1,103          788          351
  Other..............................       2,389        1,255        1,577
                                        ----------   ----------   ----------
    Total expense....................      32,632       27,860       30,568
                                        ----------   ----------   ----------
							
INCOME BEFORE INCOME TAX PROVISION...      38,239       31,020       15,234
								
INCOME TAX PROVISION.................       6,100          478          363
                                        ----------   ----------   ----------

NET INCOME...........................   $  32,139    $  30,542    $  14,871
                                        ==========   ==========   ==========
								
NET INCOME PER SHARE.................   $    2.59    $    2.87    $    1.40
                                        ==========   ==========   ==========
								
Weighted average number of common 
  shares outstanding.................   12,420,295   10,650,407   10,650,407
	

              See notes to consolidated financial statements. 

                                      F-2

<PAGE>
<TABLE>


                                    FIRST ALLIANCE CORPORATION 

                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                                       (Dollars in thousands) 

<CAPTION>

                                              
                                                                              
                                                                                 Additional
                                   Class A Common Stock  Class B Common Stock      Paid in   Retained 
                                     Shares    Amount       Shares    Amount       Capital   Earnings 
                                   ----------  ------     ----------  ------       --------  --------  
<S>                                <C>         <C>        <C>         <C>          <C>       <C>
Balance January 1, 1994                                   10,642,500  $   42                 $ 26,412
Dividends......................                                                               (17,341)
Net income.....................                                                                14,871
                                   ----------  ------     ----------  ------       --------  --------  
Balance December 31, 1994                                 10,642,500      42                   23,942
Dividends......................                                                               (12,205)
Net income.....................                                                                30,542
                                   ----------  ------     ----------  ------       --------  --------  
Balance December 31, 1995                                 10,642,500      42                   42,279
Dividends......................                                                               (15,085)
Distribution of S   
    distribution notes.........                                                               (44,995)
Net income.....................                                                              32,139
Issuance of restricted stock...                              107,500      66       $  1,534 
Initial public offering
     of stock..................    4,025,000   $   40                                63,109
Amortization of deferred
     stock compensation........
Foreign currency translation
     adjustment................
                                   ----------  ------     ----------  ------       --------  --------  
Balance December 31, 1996......    4,025,000   $   40     10,750,000  $  108       $ 64,643  $ 14,338
                                   ==========  ======     ==========  ======       ========  ========     


<CAPTION>

                                                                     Foreign
                                                      Deferred       Currency        Total
                                                       Stock       Translation  Stockholders'
                                                    Compensation    Adjustment      Equity
                                                    -------------  ------------   ----------
<S>                                                 <C>             <C>          <C> 
Balance January 1, 1994                                                           $  26,454
Dividends......................                                                     (17,341)
Net income.....................                                                      14,871
                                                    -------------  ------------   -----------
Balance December 31, 1994                                                            23,984
Dividends......................                                                     (12,205)
Net income.....................                                                      30,542
                                                    -------------  ------------   -----------
Balance December 31, 1995                                                            42,321
Dividends......................                                                     (15,085)
Distribution of S 
    distribution notes.........                                                     (44,995)
Net income.....................                                                      32,139
Issuance of restricted stock...                     $   (1,600)
Initial public offering of																						
     of stock..................                                                      63,149
Amortization of deferred
     stock compensation........                            487                          487
Foreign currency translation
     adjustment................                                     $    (38)           (38)
                                                    -------------  ------------   -----------
Balance December 31, 1996......                     $   (1,113)     $    (38)    $   77,978
                                                    =============  ============   ===========

</TABLE>

                        See notes to consolidated financial statements

                                                 F-3


<PAGE>

                          FIRST ALLIANCE CORPORATION
 
                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                            (Dollars in Thousands)


                                                 Year Ended December 31,
                                          ----------------------------------
                                             1996        1995        1994
                                          ----------  ----------  ----------
								
CASH FLOWS FROM OPERATING ACTIVITIES: 								
Net income.............................   $  32,139   $  30,542   $  14,871
Adjustments to reconcile net income to 
  net cash provided by operating activities: 								
  Loan origination and sale revenue,
    net of other fees..................     (47,871)    (34,372)    (26,783)
  Deferred income taxes................      (3,028)         73         (63)
  Net accretion of residual interests
    in securities......................        (850)     (2,048)     (1,128)
  Deferred stock compensation..........         487
  Accretion of discounts on loan receivable    (268)     (1,022)
  Amortization of mortgage servicing rights   1,813         638         683
  Depreciation and amortization........         838         907         514
  Foreign currency transaction gains...        (188)
  Loss (gain) on sales of real estate 
    owned and property.................         414          46         (78)
  Loans originated or purchased for sale, 
    net of loan fees...................    (290,773)   (213,903)   (289,338)
  Sales of regular interests in securities  267,370     167,899     347,500
  Proceeds from sales of loans.........      70,605      64,400      20,503
  Changes in assets and liabilities:								
    Receivable from trusts.............       1,993        (758)        163
    Prepaid expenses and other assets..       1,681      (2,253)        802
    Accounts payable and accrued 
      liabilities......................      (1,282)     (4,169)      4,775
    Income taxes payable...............       5,396		
                                          ----------  ----------  ----------
Net cash provided by operating activities    38,476       5,980      72,421
                                          ----------  ----------  ----------

CASH FLOWS FROM INVESTING ACTIVITIES: 								
Capital expenditures...................      (2,286)       (978)       (851)
Loans receivable issued................                  (1,579)     (1,949)
Collections on loans receivable........       1,784       2,880       1,341
Additions to real estate owned.........                    (355)
Proceeds from sales of real estate 
    owned and property.................       1,748         552       3,566
                                          ----------  ----------  ----------
Net cash provided by investing activities     1,246         520       2,107
                                          ----------  ----------  ----------

CASH FLOWS FROM FINANCING ACTIVITIES:  								
Net (repayments) borrowings on warehouse
  financing facilities.................     (18,233)      4,843     (53,445)
Payments on notes payable..............      (1,163)       (417)     (2,831)
Cash dividends.........................     (15,085)    (12,205)    (17,341)
Proceeds from issuance of notes 
  payable to stockholders..............       1,000       4,500       3,000
Payments on notes payable to stockholders    (1,000)     (4,500)     (3,000)
Proceeds from issuance of stock 
  (net of issuance costs)..............      63,149
Payments on S distribution notes.......     (44,995)
                                          ----------  ----------  ----------
Net cash used in financing activities..     (16,327)     (7,779)    (73,617)
                                          ----------  ----------  ----------
								
NET INCREASE (DECREASE) IN CASH AND 
   CASH EQUIVALENTS....................      23,395      (1,279)        911
CASH AND CASH EQUIVALENTS, 
   beginning of period.................       4,019       5,298       4,387
                                          ----------  ----------  ----------
CASH AND CASH EQUIVALENTS, end of period  $  27,414   $   4,019   $   5,298
                                          ==========  ==========  ==========

              See notes to consolidated financial statements. 

                                     F-4

<PAGE>

                        FIRST ALLIANCE CORPORATION 

                CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

                           (Dollars in Thousands)

                                                 Year Ended December 31,
                                          ----------------------------------
                                             1996        1995        1994
                                          ----------  ----------  ----------
SUPPLEMENTAL INFORMATION: 								
Interest paid..........................   $   2,735   $   4,114   $   3,605
                                          ==========  ==========  ==========
Income taxes paid......................   $   3,686   $     486   $     100
                                          ==========  ==========  ==========

								
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING								
AND FINANCING ACTIVITIES: 								
Exchange of loans for regular and 
  residual interests in securities.....   $ 267,661   $ 167,974   $ 350,331
                                          ==========  ==========  ==========
Distribution of S distribution notes...   $  44,995
                                          ==========
Initial grant of restricted stock......   $   1,600
                                          ==========
Transfer of loans held for sale to 
  loans receivable held for investment.   $   1,421
                                          ==========
Acquisition of real estate through 
  foreclosure of loans.................   $     261							
                                          ==========
Transfer of property to real estate owned $     260							
                                          ==========
Assumption of debt by acquisition of 
  real estate through foreclosure......   $     171   $      91   $   2,342
                                          ==========  ==========  ==========
Loans issued to facilitate sales of 
  real estate owned....................               $      19   $     290  
                                                      ==========  ==========


            See notes to consolidated financial statements. 

                                     F-5

<PAGE>

                          FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
         FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

    Basis of Presentation - The consolidated financial statements include the 
accounts of First Alliance Corporation ("FACO") and its subsidiaries 
(collectively the "Company"). The Company is a financial services 
organization principally engaged in mortgage loan origination, purchases, 
sales and servicing.  The majority of the Company's loans are made to owners 
of single family residences who use the loan proceeds for such purposes as 
debt consolidation and financing of home improvements.  The Company sells 
loans to investors and wholesale purchasers or securitizes them in the form 
of a Real Estate Mortgage Investment Conduit (REMIC).  A significant portion 
of the mortgages are securitized with the Company retaining the right to 
service the loans.  The Company is currently licensed as a consumer finance 
lender in thirteen states and in the United Kingdom.  The Company's business 
may be affected by many factors including real estate and other asset 
values, the level of and fluctuations in interest rates, changes in the 
securitization market and competition.

    The consolidated financial statements are prepared in accordance with 
generally accepted accounting principles.  All significant intercompany 
accounts and transactions have been eliminated in consolidation. 

    On July 31, 1996, FACO completed an initial public offering (the 
"Offering") whereby 3,500,000 shares of its Class A Common Stock were sold 
to the public resulting in gross proceeds of $59.5 million.  Concurrently, 
10,750,000 shares of the Class B Common Stock of FACO were issued in 
exchange for all of the issued and outstanding shares of First Alliance 
Mortgage Company ("FAMCO") as part of a reorganization whereby FAMCO became 
a wholly owned subsidiary of FACO.  On August 9, 1996, the underwriters' 
over-allotment option to purchase 525,000 shares of Class A Common Stock was 
exercised resulting in additional gross proceeds of $8.9 million.  The 
acquisition of FAMCO has been accounted for similar to a pooling of 
interests.  The consolidated financial position and results of operations of 
the Company for periods prior to the date of the reorganization 
substantially consist of those of FAMCO.  After deducting underwriting 
discounts and offering costs of $5.3 million, net proceeds from the Offering 
were $63.1 million. 

    Cash and Cash Equivalents - The Company considers all highly liquid debt 
instruments purchased with an original maturity of three months or less to 
be cash equivalents.

    Receivable From Trusts - In the normal course of servicing loans 
previously sold or securitized, the Company may advance payments and other 
costs to REMICs or private investor trusts on behalf of borrowers.  In such 
cases, funds advanced are reflected in the consolidated statements of 
financial condition as receivable from trusts.  Advances are recovered 
through subsequent collections from trusts or borrowers.

    Loans - Loans held for sale are loans the Company plans to sell or 
securitize which are carried at the lower of aggregate cost or market value.  
Loan origination and processing fees and related direct origination costs 
are deferred until the related loan is sold.  Loans receivable held for 
investment are loans the Company has purchased or originated and has the 
intent and ability to hold to maturity.  Loan origination and commitment 
fees and direct loan origination costs associated with loans receivable held 
for investment are deferred and offset against the related loans, and the 
net fee or cost is amortized into interest income over the contractual lives 
of the related loans.  Loans transferred from loans held for sale to loans 
receivable held for investment are transferred at the lower of cost or 
market value.  When a loan becomes over 90 days contractually delinquent, it 
is placed on non-accrual status and unpaid interest income is reversed.  
While a loan is on non-accrual status, interest is recognized only as cash 
is received.

    Allowances for Estimated Losses on Loans and Real Estate Owned - The 
allowances for estimated losses on loans and real estate owned (REO) 
represent the Company's estimate of identified and unidentified losses.  
These estimates, while based upon historical loss experience and other 
relevant data, are ultimately subjective and inherently uncertain.  The 
Company has established valuation allowances for estimated losses on 
specific loans and REO.  When these estimated losses are determined to be 
permanent, such as when a loan is foreclosed and the related property is 
transferred to REO, specific valuation allowances are charged off and are 
then reflected as writedowns.

                                     F-6

<PAGE>
                            FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

    Residual Interests in Securities - The Company securitizes a majority of 
loans held for sale in the form of a REMIC trust.  A REMIC trust  is a 
multi-class security, with certain tax advantages to investors, which 
derives its cash flow from a pool of underlying mortgages.  The regular 
interests of the REMICs are sold and the residual interests are retained by 
the Company. The documents governing the Company's securitizations require 
the Company to establish initial overcollateralization or build 
overcollateralization levels through retention of distributions by the REMIC 
trust otherwise payable to the Company as the residual interest holder.  
This overcollateralization causes the aggregate principal amount of the 
loans in the related pool and/or cash reserves to exceed the aggregate 
principal balance of the outstanding regular interests.  Such excess amounts 
serve as credit enhancement for the regular interests of the related REMIC 
trust.  To the extent that borrowers default on the payment of principal or 
interest on the loans, losses will reduce the overcollateralization to the 
extent that funds are available.  If payment defaults exceed the amount of 
overcollateralization, as applicable, the insurance policy maintained by the 
related REMIC trust will pay any further losses experienced by holders of 
the regular interests in the related REMIC trust.  The Company does not have 
any recourse obligations for credit losses in the REMIC trust.

    The Company classifies residual interests as trading securities which are 
carried at fair value with any unrealized gains or losses recorded in the 
results of operations in the period of the change in fair value.  Valuations 
at origination and at each reporting period are based on discounted cash 
flow analyses.  The cash flows are estimated as the excess of the weighted 
average coupon on each pool of underlying mortgages over the sum of the 
pass-through interest rates on the regular interests of the related REMIC 
trust, servicing fees, trustee fees, insurance fees, and an estimate of 
annual future loan losses.  These cash flows are projected over the life of 
the loans using prepayment, default, loss, and interest rate assumptions 
that market participants would use for similar financial instruments subject 
to prepayment, credit and interest rate risk and are discounted using an 
interest rate that a purchaser unrelated to the seller of such a financial 
instrument would demand. At origination, the Company utilized prepayment 
assumptions based upon constant prepayment rates ranging from 25.0% to 
40.0%, estimated annual loan losses of 0.5% of the outstanding principal 
balance and weighted average discount rates of 18.0%, 18.0% and 23.6% for 
the years ended December 31, 1996, 1995, and 1994,  respectively, to value 
residual interests.  The valuation includes consideration of characteristics 
of the loans including loan type and size, interest rate, origination date, 
term and geographic location.  The Company also uses other available 
information such as externally prepared reports on prepayment rates, 
collateral value, economic forecasts and historical default and prepayment 
rates of the portfolio under review.  To the Company's knowledge, there is 
no active market for the sale of these residual interests.  The range of 
possible values attributable to the factors used in determining fair value 
is broad.  Accordingly, the Company's estimate of fair value is subjective.

    Mortgage Servicing Rights - Effective January 1, 1995, the Company adopted 
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting 
for Mortgage Servicing Rights", which requires that upon sale or 
securitization of servicing retained mortgages, companies capitalize the 
cost associated with the right to service mortgage loans based on their 
relative fair values.  The Company determines fair value based on the 
present value of estimated net future cash flows related to servicing 
income.  The cost allocated to the mortgage servicing rights is amortized in 
proportion to and over the period of estimated net future servicing fee 
income.

                                     F-7

<PAGE>
                          FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

    The Company capitalized, at fair value, $3,817,000 and $3,896,000 of 
mortgage servicing rights for the years ended December 31, 1996 and 1995, 
respectively.  During the same periods, related amortization of such 
mortgage servicing rights was $1,631,000 and $208,000, respectively.  The 
Company periodically evaluates capitalized mortgage servicing rights for 
impairment, which is measured as the excess of unamortized cost over fair 
value.  This review is performed on a disaggregated basis based on loan 
type.  The Company generally makes loans to credit impaired borrowers whose 
borrowing needs may not be met by traditional financial institutions due to 
credit exceptions.  The Company has found that credit impaired borrowers are 
payment sensitive rather than interest rate sensitive.  Therefore, the 
Company does not consider interest rates a predominant risk characteristic 
for purposes of evaluating impairment.  Impairment, if it occurs, is 
recognized in a valuation allowance for each pool in the period of 
impairment.  

    Property - Property is stated at cost and depreciated over the estimated 
useful lives of the assets using accelerated methods.  Leasehold 
improvements are amortized on the straight-line method over the lesser of 
the useful lives of the assets or the terms of the related leases.  Useful 
lives generally range from three to seven years.

    Real Estate Owned - Real estate acquired in settlement of loans generally 
results when property collateralizing a loan is foreclosed upon or otherwise 
acquired by the Company in satisfaction of the loan.  Real estate acquired 
through foreclosure is carried at either the lower of fair value less costs 
to dispose or the recorded investment in the loan.  Fair value is based on 
the net amount that the Company could reasonably expect to receive for the 
asset in a current sale between a willing buyer and a willing seller, that 
is, other than in a forced or liquidation sale.  
 
    Adjustments to the carrying value of REO are made through valuation 
allowances and chargeoffs recognized through a charge to earnings.

    Revenue Recognition - The Company derives its revenue principally from 
gains on sale of loans including fees for the origination of loans, loan 
servicing fees and interest income.  The Company sells its loans through 
securitization and other loan sales.  Revenue from loans pooled and 
securitized or sold in the secondary market is recognized when such loan 
pools are sold.  The Company retains the right to service all loans it 
securitizes.  The Company receives a management fee for servicing loans 
based on a fixed percentage of the declining balance of securitized loan 
pools and other ancillary and prepayment fees associated with the servicing 
of such loans.  Through securitizations, the Company retains a residual 
interest in the excess of the weighted average coupon on each pool of 
underlying mortgages over the sum of the pass-through interest rates on the 
senior classes of the related REMIC, servicing fees, trustee fees, insurance 
fees and loan losses.

    Loan origination and sale revenue includes all mortgage related income 
other than loan servicing and other fees, interest and other income.

    Loan servicing and other fees are recorded as earned.

    Interest income is recorded as earned.  Interest income represents the 
interest earned on loans held for sale during the period prior to their 
securitization or sale, loans receivable held for investment, residual 
interests and cash equivalents.  At the end of each quarter, in accordance 
with Emerging Issues Task Force Issue No. 89-4, the Company computes an 
effective yield based on the carrying amount of each residual interest and 
its then-current estimate of future cash flows. This yield is then used to 
accrue interest income on the residual interest in the subsequent quarter.  
As of December 31, 1996, the weighted average effective yield of the 
Company's residual interests was 34%.

    Income Taxes - Deferred tax assets and liabilities are determined based on 
temporary differences between financial reporting and tax basis of assets 
and liabilities and are measured by applying enacted tax rates and laws to 
taxable years in which such temporary differences are expected to be 
recovered or settled.  The effect on deferred tax assets and liabilities of 
a change in tax rates is recognized in income in the period that includes 
the enactment date.
   	

                                     F-8

<PAGE>
                        FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

    Net Income per Share - Net income per share has been computed by dividing 
net income by the weighted average number of shares of common stock and 
common stock equivalents outstanding during the period.  In accordance with 
regulations of the Securities and Exchange Commission, which require that 
stock issued within a one year period prior to the initial filing of a 
registration statement relating to an initial public offering be treated as 
outstanding for all reported periods, the weighted average number of common 
shares for all periods includes the dilutive impact of the restricted stock 
issued in June 1996.  The dilutive impact has been computed using the 
treasury stock approach, with the Offering price of $17 per share used as 
the repurchase price for all periods prior to the date of the Offering.  In 
addition, the dilutive effect of the options issued under the Company's 
stock incentive plan has been included in computing earnings per share for 
the year ended December 31, 1996.  Because the Company was an S corporation 
in 1994 and 1995, and in 1996 up to the date of the Offering, net income and 
net income per share are not necessarily indicative of results of operations 
of the ongoing entity.

    Supplementary Net Income Per Share - Assuming that the 4,025,000 shares of 
Class A Common Stock issued in the Offering were issued at the beginning of 
1994, net income per share would have been $2.22, $2.08 and $1.01 for the 
years ended December 31, 1996, 1995 and 1994, respectively.  The computation 
of supplementary net income per share assumes that proceeds from the 
Offering would have been used to pay the S distribution notes at the date of 
their issuance in May 1996.  Therefore, the interest expenses incurred on 
the S distribution notes, net of tax benefits, of $0.6 million for the year 
ended December 31, 1996 was added to net income for purposes of computing 
supplementary net income per share.  

    Use of Estimates in the Preparation of Financial Statements - The 
preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements 
and the reported amounts of revenues and expenses during the reporting 
periods.  Actual results could differ from those estimates.

    Foreign Currency Translation - The financial statements of the Company's 
United Kingdom subsidiary were prepared in pounds sterling, its functional 
currency, and translated into dollars at the current exchange rate at the 
end of the period for the statements of financial condition and at a 
weighted average rate for the period on the statements of income.  
Translation adjustments are reflected as foreign currency translation 
adjustments in stockholders' equity and accordingly have no effect on 
income.  Foreign currency transaction gains and losses for the Company's 
United Kingdom subsidiary are included in income.

    Recent Accounting Pronouncements - In 1996, the Financial Accounting 
Standards Board ("FASB") issued SFAS No. 123 "Accounting for Stock-Based 
Compensation"("SFAS 123"), which encourages companies to account for stock 
compensation awards based on their fair value at the date the awards are 
granted.  SFAS 123 does not require the application of the fair value method 
for stock compensation granted to employees and allows for continuance of 
current accounting practice, which requires accounting for stock 
compensation awards based on their intrinsic value as of the date of grant. 
However, SFAS 123 requires pro forma disclosure of net income and net income 
per share, as if the fair value based method of accounting defined in SFAS 
123 had been applied.  In 1996, the Company adopted all the provisions of  
SFAS 123 except for the fair value provisions for transactions with 
employees.  

    In 1996, FASB issued SFAS No. 125 "Accounting for Transfers and Servicing 
of Financial Assets and Extinguishment of Liabilities" which becomes 
effective for transactions occurring after December 31, 1996.  The adoption 
of this standard is not expected to have a material effect on the Company's 
financial position or results of operations.

    Reclassifications - Certain reclassifications have been made to conform the 
1995 and 1994 consolidated financial statements to the 1996 presentation.
 
                                     F-9

<PAGE>
                        FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

NOTE 2.  LOANS RECEIVABLE HELD FOR INVESTMENT

    Loans receivable held for investment are secured principally by single 
family residences.  The loans bear interest at fixed rates ranging up to 
15.95% per annum and are due in monthly installments of principal and 
interest through August 2026.

NOTE 3. PROPERTY

  Property consists of the following at December 31:

                                                        1996         1995
                                                     ----------   ----------
                                                      (Dollars in thousands)
    Office equipment............................     $   4,218    $   4,245
    Vehicles....................................           396          388
    Leasehold improvements......................            78          160
    Computer software...........................           647        1,119
    Building....................................           141          406
    Land........................................                         98
                                                     ----------   ----------
    Property, gross.............................         5,480        6,416
    Less accumulated depreciation and amortization     ( 2,382)      (4,275)
                                                     ----------   ----------
    Property, net...............................     $   3,098    $   2,141
                                                     ==========   ==========

NOTE 4. SERVICING PORTFOLIO

    Trust and other custodial funds, relating to loans serviced for others, 
amounted to approximately $14.5 million, $5.8 million and $2.4 million at  
December 31, 1996, 1995 and 1994, respectively.  Such funds, which are 
maintained in separate bank accounts, are excluded from the Company's assets 
and liabilities.

    Total loans serviced amounted to $641,191,000 and $613,791,000 at  
December 31, 1996 and 1995, respectively.  

NOTE 5. WAREHOUSE FINANCING FACILITIES

    The Company has two revolving lines of credit with secured asset-based 
lenders.  The first line of credit allows the Company to borrow and repay 
during a 90 day revolving period up to $125 million.  The second line of 
credit allows the Company to borrow and repay during the term of the line of 
credit up to $25 million.  Both lines of credit bear interest at a variable 
rate based upon the London Interbank Offered Rate (LIBOR) payable monthly.  
The first line of credit is renewable by the lender on a quarterly basis and 
currently expires on March 31, 1997.  The second line of credit expires on 
March 3, 1998.  Outstanding borrowings under both lines of credit are 
collateralized by loans held for sale.  Upon the sale or securitization of 
loans, borrowings are repaid.  These lines of credit contain certain 
affirmative, negative and financial covenants, with which the Company was in 
compliance at December 31, 1996.

                                     F-10

<PAGE>
                          FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

    The following table presents data on the lines of credit for the year 
ended December 31: 

                                               1996        1995         1994
                                             ---------   ---------   ---------
                                                  (Dollars in thousands)

Weighted average interest rate for the period    6.30%       7.10%       5.96%
Interest rate at the end of the period           6.30%       6.56%       7.38%
Average amount outstanding for the period     $ 30,507   $  52,610   $  58,139
Maximum amount outstanding at any month-end   $ 65,262   $ 108,217   $ 110,551

NOTE 6. NOTES PAYABLE

  Notes payable principally represent amounts owed related to senior liens 
on properties foreclosed upon by the Company.  The notes bear fixed and 
variable interest at rates ranging from 7.33% to 9.00% per annum at December 
31, 1996 and are payable $4,000 in each of the years 1997 through 2001, and 
$111,000 thereafter. 

NOTE 7.  EMPLOYEE BENEFIT PLAN

  The Company has a 401(k) defined contribution plan, which was established 
in 1994, available to all employees who have been with the Company for six 
months and have reached the age of 21.  Employees may generally contribute 
up to 15% of their salary each year and the Company, at its discretion, may 
match up to 25% of the first 7% contributed by the employee.  The Company's 
contribution expense was $120,000, $97,000 and $45,000 for the years ended 
December 31, 1996, 1995 and 1994, respectively.

NOTE 8.  INCOME TAXES

  Through the date of the Offering in 1996, and in 1995 and 1994, the 
Company elected to be treated for Federal income and certain state tax 
purposes as an S corporation whereby its taxable income was included in the 
individual returns of the stockholders.  As an S corporation, the Company 
was subject to certain state taxes, primarily in California.  Upon 
consummation of the Offering, the Company became a C corporation subject to 
Federal and state income taxes.  The income tax provision for 1996 
represents S corporation taxes prior to the Offering, C corporation taxes 
subsequent to the Offering and net deferred tax assets recognized upon the 
conversion from an S corporation to a C corporation. 

  Taxes for 1995 and 1994 represent certain state taxes.  The reconciliation 
of income tax from continuing operations computed at the Federal statutory 
tax rate to the Company's effective income tax rate for the year ended 
December 31, 1996 is as follows:

     Tax at Federal statutory rate.........................     35.0 %
     Benefit for S corporation period taxation.............    (14.5)
     Effect of conversion to C corporation.................     (8.4)	
     State income taxes, net of Federal benefit............      3.9
                                                             ---------
     Effective rate........................................     16.0 % 
                                                             =========

                                     F-11

<PAGE>
                          FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

  The components of the provision for income taxes for the years ended 
December 31 are as follows: 

                                                    1996     1995       1994
                                                  --------  --------  --------
                                                      (Dollars in thousands)
  Current: 								
    Federal...................................    $ 7,204
    State.....................................      1,924   $   405   $   426
                                                  --------  --------  --------
  Total current..............................       9,128       405       426
                                                  --------  --------  --------
								
  Deferred:								
    Federal..................................      (3,289)
    State....................................         261       73        (63)
                                                  --------  --------  --------
  Total deferred.............................      (3,028)      73        (63)
                                                  --------  --------  --------
  Total......................................     $ 6,100   $  478    $   363
                                                  ========  ========  ========

    Deferred tax assets and liabilities reflect the temporary differences 
between financial reporting and tax basis of assets and liabilities and are 
measured by applying enacted tax rates and laws to taxable years in which 
such temporary differences are expected to be recovered or settled.  
Significant components of the Company's deferred tax assets and liabilities 
as of December 31, 1996 are as follows: 

                                                        (Dollars in thousands)
  Deferred tax assets: 			
     Residual interests....................................$     3,209
     Legal expenses........................................      1,393
     Mark to market on loans held for sale.................        700
     State taxes...........................................        535
     Other.................................................        579
                                                           ------------
  Total....................................................$     6,416
                                                           ============
			
  Deferred tax liabilities: 			
     Mortgage servicing rights.............................$     2,585
     Other.................................................        730
                                                           ------------
  Total....................................................$     3,315
                                                           ============

NOTE 9.  COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF RISK

    The Company's operations are conducted from leased facilities located in 
various areas of the United States and the United Kingdom.  These leases 
have clauses which provide for increases in rent based on increases in the 
cost of living index and options for renewal.  The future minimum lease 
payments are as follows:

                                                     (Dollars in thousands)
     Year ending December 31: 	
     1997.................................................$      1,384
     1998.................................................       1,110
     1999.................................................         904
     2000.................................................         812
     2001.................................................         686
     Thereafter...........................................         565

                                     F-12

<PAGE>
                            FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

  In the ordinary course of business, the Company has liability under 
representations and warranties made to purchasers and insurers of mortgage 
loans.  Under certain circumstances, the Company may become liable for the 
unpaid principal and interest on defaulted loans or other loans if there has 
been a breach of representation or warranties.

  The Company has negotiated employment agreements with certain officers.  
These agreements provide for the payment of base salaries, the issuance of 
common stock subject to certain restrictions and the payment of severance 
benefits upon termination.

  In December 1989, a class action suit was filed on behalf of certain 
borrowers related to the origination of their loans by the Company.  The 
Company, without admitting to any wrong-doing, agreed to settle the case in 
December 1994.  The terms of the settlement provide for cash payments to the 
plaintiffs in the amount $6,850,000, which is to be paid out over a three-
year period.  Remaining future payments to plaintiffs of $333,000 are 
included in accrued liabilities at December 31, 1996.

  The Company is involved in certain litigation arising in the normal course 
of business.  The Company believes that any liability with respect to such 
legal actions, individually or in the aggregate, is not likely to be 
material to the Company's consolidated financial position or consolidated 
results of operations.

  At December 31, 1996, loans related to property located in the state of 
California comprised approximately 67% of the total serviced loan portfolio 
while no other state comprised more than 7%.

  Availability of Funding Sources - The Company funds substantially all of 
the loans which it originates or purchases through borrowings under its 
warehouse financing facilities and internally generated funds.  These 
borrowings are in turn repaid with the proceeds received by the Company from 
selling such loans through loan sales or securitizations.  Any failure to 
renew or obtain adequate funding under those warehouse financing facilities, 
or other borrowings, or any substantial reduction in the size of or pricing 
in the markets for the Company's loans, could have a material adverse effect 
on the Company's operations.  To the extent that the Company is not 
successful in maintaining or replacing existing financing, it would have to 
curtail its loan production activities or sell loans earlier than is 
optimal, thereby having a material adverse effect on the Company's 
consolidated financial condition and consolidated results of operations.

  Dependence on Securitizations - Since 1992, the Company has pooled and 
sold through securitizations an increasing percentage of the loans which it 
originates.  The Company derives a significant portion of its income by 
recognizing gains upon the sale of loans through securitizations.  These 
gains are due in part to the value recorded at the time of sale of residual 
interests and retained mortgage servicing rights.  Adverse changes in the 
securitization market could impair the Company's ability to purchase and 
sell loans through securitizations on a favorable or timely basis.  Any such 
impairment could have a material adverse effect upon the Company's 
consolidated financial condition and consolidated results of operations.

  The Company has relied on credit enhancement to achieve a "AAA/aaa" rating 
for the senior classes of the REMICs in its securitizations.  The credit 
enhancement has generally been in the form of an insurance policy issued by 
an insurance company insuring the timely repayment of the senior classes in 
each of the REMIC trusts.  There can be no assurance that the Company will 
be able to obtain credit enhancement in any form from the current insurer or 
any other provider of credit enhancement on acceptable terms or that future 
securitizations will be similarly rated.  A downgrading of the insurer's 
credit rating or its withdrawal of credit enhancement could have a material 
adverse effect on the Company's consolidated financial condition and 
consolidated results of operations.

                                     F-13

<PAGE>
                            FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

NOTE 10.  STOCKHOLDERS' EQUITY 

  The Company's shares of Class A and Class B Common Stock are identical, 
except with respect to voting rights and the right to convert Class B Common 
Stock to Class A Common Stock.  Holders of Class A Common Stock are entitled 
to one vote for each share held of record, and holders of Class B Common 
Stock are entitled to four votes for each share held of record.  Each share 
of Class B Common Stock is freely convertible into one share of Class A 
Common at the option of the Class B stockholder.  Shares of Class B Common 
Stock shall be automatically converted to Class A Common Stock upon the 
transfer of Class B Common Stock to a third party or when the number of 
shares of Class B Common Stock represents less than 10% of the total number 
of shares of Common Stock outstanding.

  During 1996, FAMCO distributed S distribution notes of $45.0 million to 
its stockholders.  Such amount has been recorded as a dividend to Class B 
common stockholders.  In 1996, payments on the S distribution notes of $45.0 
million were made by the Company using proceeds from the Offering.

  On May 11, 1996, the Company's Board of Directors approved a stock split 
of its common stock whereby approximately 710 shares of common stock were 
issued for each outstanding share of common stock.  All share and per share 
amounts included in the accompanying consolidated financial statements and 
footnotes have been restated to reflect the stock split.
	
  In June 1996, FAMCO granted 107,500 shares of restricted common stock to 
an officer of the Company.  These shares, which were exchanged for 107,500 
shares of FACO Class B Common Stock in conjunction with the Offering, vest 
over a period of five years or earlier upon the occurrence of certain 
events.  A value of $1.6 million has been ascribed to such shares by the 
Company.  This amount has been recorded in the accompanying financial 
statements as increases to Class B Common Stock and paid in capital with an 
offsetting amount included in deferred stock compensation.  In 1996, 29,285 
shares of such restricted Class B Common Stock vested as a result of the 
Offering.  During 1996, $0.5 million of compensation expense was recognized.

  On July 24, 1996, the shareholders approved a stock incentive plan, which 
enables directors, officers and other key employees of the Company to 
participate in the ownership of the Company.  Under the stock incentive 
plan, 642,500 shares of Common Stock were available for grant on July 24, 
1996.  On July 25, 1996, the Company granted options to acquire an aggregate 
of 529,065 shares of Class A Common Stock at an exercise price, equal to the 
market price, of $17.00 per share.  These options vest 25% six months from 
the date of grant and 25% each year thereafter until fully vested and expire 
on the earlier of ten years from the date of grant or 90 days after an 
optionee's termination of service.  As of December 31, 1996, no options 
granted had been exercised or forfeited.
	
  The Company accounts for its stock incentive plan based on the intrinsic 
value of a grant as of the date of the grant in accordance with Accounting 
Principles Board Opinion No. 25.  Accordingly, no compensation expense has 
been recognized in 1996 for options granted under the Company's stock 
incentive plan.  Had compensation cost been recognized in accordance with 
the fair value provisions of SFAS 123, pro forma net income and net income 
per share would have been $30.7 million and $2.48, respectively.  The fair 
value of each option grant, $12.86 for options granted in 1996, is estimated 
on the date of grant using the Black-Scholes option pricing model with the 
following weighted average assumptions used for grants in 1996:  no dividend 
yield; expected volatility of 58.78%; risk-free interest rate of 7.00%; and 
expected lives of 10 years.

                                     F-14

<PAGE>
                          FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

NOTE 11.  RELATED PARTY TRANSACTIONS

  The following amounts represent related party transactions for the years 
ended December 31:

                                                  1996      1995      1994
                                                --------  --------  --------
                                                   (Dollars in thousands)
Loans sold to principal stockholder of 
   the Company..............................    $   515   $ 3,188   $6,783
Loans purchased from an entity in which
   the Company's principal stockholder has
   a controlling interest...................               15,126   91,501
Loans purchased from companies owned by 
   family members of the Company's principal 
   stockholder:		
      Loans purchased.......................     31,033     9,841
      Premiums paid.........................      1,208       193
Other fees received from an entity in which 
   the Company's principal stockholder has a 
   controlling interest and companies owned 
   by family members of the Company's principal 
   stockholder..............................       186        715
Payments to companies owned by the Company's 
principal stockholder:					
   Rent payments............................       464         18       18
   Consulting fees..........................                   76      161
Interest paid to stockholders on notes payable 
   to stockholder and S distribution notes..       612        223       10

  The following amounts represent related party 
      balances as of December 31:  
                                                            1996      1995
                                                          --------  --------
                                                      (Dollars in thousands)
Loans serviced for related parties..........              $ 7,044   $12,909
Receivable from officer of the Company......                  319
Balance outstanding on warehouse line to 
   companies owned by family members of the Company's
    principal stockholder...................                            525
			

NOTE 12.  FINANCIAL INSTRUMENTS

  The Company regularly securitizes and sells fixed and variable rate 
mortgage loans.  As part of its interest rate risk management strategy, the 
Company may from time to time hedge its interest rate risk related to its 
loans held for sale and origination commitments by selling short United 
States Treasury securities. For accounting purposes, selling short United 
States Treasury securities is not considered to be a hedge.  Therefore, the 
Company has recognized realized and unrealized gains and losses on hedging 
activities in the period in which they occur.  Gains and (losses) on hedging 
activities were $434,000, $(255,000) and $800,000 for the years ended 
December 31, 1996, 1995 and 1994, respectively.

                                     F-15

<PAGE>

                          FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

  The following disclosures of the estimated fair value of financial 
instruments as of December 31, 1996 and 1995 are made in accordance with the 
requirements of SFAS No. 107, "Disclosure About Fair Value of Financial 
Instruments".  The estimated fair value amounts have been determined by the 
Company using available market information and appropriate valuation 
methodologies.  However, considerable judgment is necessarily required to 
interpret market data to develop the estimates of fair value.  Accordingly, 
the estimates presented herein are not necessarily indicative of the amounts 
the Company could realize in a current market exchange.  The use of 
different market assumptions and/or estimation and methodologies may have a 
material effect on the estimated fair value amounts.

                                             1996                1995
                                      ------------------  ------------------
                                      Carrying Estimated  Carrying  Estimated
                                       Amount  Fair Value  Amount   Fair Value
                                      --------  --------  --------  --------
                                             (Dollars in thousands)
Assets:							
  Cash and cash equivalents..........  $27,414   $27,414   $ 4,019   $ 4,019
  Loans held for sale................   11,023    12,912    24,744    25,610
  Loans receivable held for investment   2,432     2,771     2,261     2,340
  Residual interests.................   29,253    29,253    19,705    19,705
Liabilities: 							
  Warehouse financing facilities.....                       18,233    18,233
  Notes payable......................      131       131     1,123     1,174

  The estimated fair value of loans is based upon prices paid by the Company 
for loans it purchases.

  The fair value of residual interests are determined based on estimates of 
their fair value using discounted cash flows. 

  Rates currently available to the Company for debt with similar terms and 
remaining maturities were used to estimate the fair value of the warehouse 
financing facilities and notes payable.

  The fair value estimates presented herein are based on pertinent 
information available to management as of December 31, 1996 and 1995.  
Although management is not aware of any factors that would significantly 
affect the estimated fair value amounts, such amounts have not been 
comprehensively revalued for purposes of these consolidated financial 
statements since that date and, therefore, current estimates of fair value 
may differ significantly from the amounts presented herein.

  Off-Balance Sheet Activities - The Company is exposed to on-balance sheet 
credit risk related to its loans held for sale, residual interests and loans 
receivable held for investment.  The Company is exposed to off-balance sheet 
credit risk related to loans which the Company has committed to originate or 
buy.

  The Company is party to financial instruments with off-balance sheet 
credit risk in the normal course of business.  These financial instruments 
include commitments to extend credit to borrowers and commitments to 
purchase loans from others. The Company has a first or second lien position 
on substantially all of its loans, and the maximum combined loan-to-value 
(CLTV) permitted by the Company's underwriting guidelines is 85%.  The CLTV 
represents the combined mortgage balances as a percentage of the appraised 
value of the mortgaged property.  A title insurance policy is required for 
all loans.

	  As of  December 31, 1996, the Company had outstanding commitments to 
extend credit or purchase loans in the amounts of $7,524,000.

                                     F-16

<PAGE>

                          FIRST ALLIANCE CORPORATION
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996

NOTE 13.  SELECTED QUARTERLY FINANCIAL DATA (Unaudited)


(Dollars in thousand except per share amounts)
----------------------------------------------
                                   First     Second      Third      Fourth 
                                  Quarter   Quarter     Quarter     Quarter
                               ---------------------------------------------
1996											
  Total revenue...........     $  14,810  $  17,024    $  18,922   $  20,115
  Income before income tax 
    provision.............         7,860      9,306        9,891      11,182
  Net income..............         7,742      9,167        8,633       6,597
  Net income per share....          0.73       0.86         0.64        0.44
											
1995											
  Total revenue...........      $  5,963  $  18,174    $   8,280   $  26,463
  Income (loss) before income tax 
    provision.............          (300)    11,346        1,391      18,583
  Net income (loss).......          (295)    11,175        1,370      18,292
  Net income (loss) per share      (0.03)      1.05         0.13        1.72


                                                 F-17

<PAGE>

                            Independent Accountants' Report 




To the Board of Directors and Stockholders of 
First Alliance Corporation 

We have audited the accompanying consolidated statements of financial 
condition of First Alliance Corporation and subsidiaries (the Company) as of 
December 31, 1996 and 1995, and the related consolidated statements of 
income, stockholders' equity and cash flows for each of the three years in 
the period ended December 31, 1996.  These  financial statements are the 
responsibility of the Company's management.  Our responsibility is to 
express an opinion on these financial statements based on our audits. 

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.   
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.  

In our opinion, such consolidated financial statements present fairly, in 
all material respects, the financial position of First Alliance Corporation 
and subsidiaries as of December 31, 1996 and 1995, and the results of their 
operations and their cash flows for each of the three years in the period 
ended December 31, 1996, in conformity with generally accepted accounting 
principles. 

As described in Note 1, on January 1, 1995, the Company adopted Statement of 
Financial Accounting Standards No. 122, Accounting for Mortgage Servicing 
Rights. 

DELOITTE & TOUCHE LLP

Costa Mesa, California
January 20, 1997




                                     F-18